This Annual Report, including the Financial Review and the Financial Statements and related Notes,
contains forward-looking statements, which may include forecasts of our financial results and
condition, expectations for our operations and business, and our assumptions for those forecasts
and expectations. Do not unduly rely on forward-looking statements. Actual results may differ
materially from our forward-looking statements due to several factors. Some of these factors are
described in the Financial Review and in the Financial Statements and related Notes. For a
discussion of other factors, refer to the Forward-Looking Statements and Risk Factors sections
in this Report and the Regulation and Supervision section of our Annual Report on Form 10-K for
the year ended December 31, 2010 (2010 Form 10-K).

See the Glossary of Acronyms at the end of this Report for terms used throughout this Report.

Financial Review

Overview

Wells Fargo & Company is a $1.3 trillion diversified financial services company
providing banking, insurance, trust and investments, mortgage banking, investment banking, retail
banking, brokerage and consumer finance through banking stores, the internet and other distribution
channels to individuals, businesses and institutions in all 50 states, the District of Columbia
(D.C.) and in other countries. We ranked fourth in assets and second in the market value of our
common stock among our large bank peers at December 31, 2010. When we refer to Wells Fargo, the
Company, we, our or us in this Report, we mean Wells Fargo & Company and Subsidiaries
(consolidated). When we refer to the Parent, we mean Wells Fargo & Company. When we refer to
legacy Wells Fargo, we mean Wells Fargo excluding Wachovia Corporation (Wachovia).

Our vision is to satisfy all our customers financial needs, help them succeed financially, be
recognized as the premier financial services company in our markets and be one of Americas great
companies. Our primary strategy to achieve this vision is to increase the number of products our
customers buy from us and to offer them all of the financial products that fulfill their needs. Our
cross-sell strategy, diversified business model and the breadth of our geographic reach facilitate
growth in both strong and weak economic cycles, as we can grow by expanding the number of products
our current customers have with us, gain new customers in our extended markets, and increase market
share in many businesses. We continued to earn more of our customers business in 2010 in both our
retail and commercial banking businesses and in our equally customer-centric securities brokerage
and investment banking businesses.

Reflecting solid growth in a variety of businesses, Wells Fargo net income was a record $12.4
billion in 2010. Diluted earnings per common share were $2.21. Pre-tax pre-provision profit (PTPP)
was $34.8 billion in 2010, which covered almost 2.0 times annual net charge-offs. PTPP is total
revenue less noninterest expense. Management believes that PTPP is a useful financial measure
because it enables investors and others to assess the Companys ability to generate capital to
cover credit losses through a credit cycle.

Our combined company retail bank household cross-sell, reported for the first time in December
2010, was 5.70 products per household, up from 5.47 a year ago. Cross-sell for the

combined
company, which is lower than legacy Wells Fargo stand-alone cross-sell, indicates the opportunity
to earn more business from our Wachovia customers. The cross-sell for customers in the West was
6.14 products, compared with 5.11 for customers in the East. Our goal is eight products per
customer, which is approximately half of our estimate of potential demand for an average U.S.
household. One of every four of our retail banking households has eight or more products. Business
banking cross-sell offers another potential opportunity for growth, with cross-sell of 4.04
products in our Western footprint (including legacy Wells Fargo and converted Wachovia customers).

Wells Fargo remained one of the largest providers of credit to the U.S. economy. We continued
to lend to creditworthy customers and, during 2010, made $665 billion in new loan commitments to
consumer, small business and commercial customers, including $386 billion of residential mortgage
originations. We are an industry leader in loan modifications for homeowners. As of December 31,
2010, more than 620,000 Wells Fargo mortgage customers were in active trial or had completed the
loan modifications since the beginning of 2009. We also continued to support our communities by
making a $400 million charitable contribution to the Wells Fargo Foundation in 2010, covering three
years of estimated future funding.

Our core deposits grew 2% from December 31, 2009. Average core deposits funded 100% of total
average loans in 2010, up from 93% in 2009. We continue to attract high quality core deposits in
the form of checking and savings deposits, which grew 6% to $720.9 billion at December 31, 2010,
from $679.9 billion a year ago, as we continued to gain new customers and deepen our relationships
with existing customers.

On December 31, 2008, Wells Fargo acquired Wachovia, one of the nations largest diversified
financial services companies. Wachovias assets and liabilities were included in the December 31,
2008, consolidated balance sheet at their respective fair values on the acquisition date. Because
the acquisition was completed on December 31, 2008, Wachovias results of operations were not
included in our 2008 income statement. Beginning in 2009, our consolidated results and associated
financial information, as well as our consolidated average balances, include Wachovia.

We
are beginning our third year of the Wachovia integration, which we
expect to substantially complete by the end of 2011.

34

Our progress to date remains on track and on schedule, with business
and revenue synergies exceeding our expectations at the time the merger was announced. The Wachovia
merger has already proven to be a financial success, with substantially all of the expected savings
already realized and growing revenue synergies reflecting market share gains in many businesses,
including mortgage, auto dealer services and investment banking.

We continued to invest in core businesses while maintaining a strong balance sheet. In 2010,
we opened 47 retail banking stores for a retail network total of 6,314 stores. We converted a total
of 749 Wachovia banking stores in Alabama, Arizona, California, Georgia, Illinois, Kansas,
Mississippi, Nevada, Tennessee and Texas, as well as the Wachovia credit card business and ATM
network. The conversion of the remaining Wachovia eastern markets is expected to be substantially
completed by the end of 2011.

We continued taking actions to further strengthen our balance sheet, including reducing our
non-strategic and liquidating loan portfolios, which have declined $54.6 billion since the Wachovia
acquisition, including $26.3 billion in 2010, to $115.7 billion at December 31, 2010. We
significantly built capital in 2010, up $12.9 billion, or 12%, from a year ago. Our capital growth
since our merger with Wachovia has been driven by record retained earnings and other sources of
internal capital generation, as well as three common stock offerings between October 2008 and
December 2009 totaling over $33 billion. This included the $12.2 billion offering in fourth quarter
2009, which allowed us to repay in full the U.S. Treasurys Troubled Asset Relief Program (TARP)
preferred stock investment. We substantially increased the size of the Company with the Wachovia
merger, and experienced cyclically elevated credit costs. However, our capital ratios at December
31, 2010, were higher than they were prior to the Wachovia acquisition. Tier 1 common equity
increased to $81.3 billion at December 31, 2010, or 8.30% of risk-weighted assets. The Tier 1
capital ratio increased to 11.16% and Tier 1 leverage ratio increased to 9.19%. See the Capital
Management section in this Report for more information regarding Tier 1 common equity.

We experienced continued and significant improvement in our credit portfolio, with most
metrics showing positive movement by the end of 2010. Net charge-offs declined in 2010 from the
peak in fourth quarter 2009, with almost every major loan category recording lower charge-offs by
the end of 2010. Delinquencies continued to decline from the peak at the end of 2009 and, in the
fourth quarter 2010, nonaccrual loans declined for the first time since the Wachovia merger. The
improvement in credit quality was also evident in the portfolio of purchased credit-impaired (PCI)
loans acquired through the Wachovia merger, which overall has performed better than originally
expected. Reflecting improved performance in our loan portfolios, the provision for credit losses
was $2.0 billion less than net charge-offs for 2010. Absent significant deterioration in the
economy, we expect future reductions in the allowance for credit losses. The improvement in losses,
a more favorable economic outlook and improved credit statistics in several portfolios further
increase our confidence that our credit cycle is turning, provided economic conditions do not
deteriorate.

We believe it is important to maintain a well controlled operating environment as we complete
the integration of the Wachovia businesses and grow the combined company. We manage our credit risk
by establishing what we believe are sound credit policies for underwriting new business, while
monitoring and reviewing the performance of our loan portfolio. We manage the interest rate and
market risks inherent in our asset and liability balances within established ranges, while ensuring
adequate liquidity and funding. We maintain strong capital levels to facilitate future growth.

As a result of PCI accounting for loans acquired in the merger with Wachovia, ratios of the
Company, including the growth rate in nonperforming assets (NPAs) since December 31, 2008, may not
be directly comparable with periods prior to the merger or with credit-related ratios of other
financial institutions. In particular:



Wachovias high risk loans were written down pursuant to PCI accounting at the time of
merger. Therefore, the allowance for credit losses is lower than otherwise would have been
required without PCI loan accounting; and



Because we virtually eliminated Wachovias nonaccrual loans at December 31, 2008, quarterly
growth in our nonaccrual loans during 2010 and 2009 was higher than it would have been without
PCI loan accounting. Similarly, our net charge-offs rate was lower than it otherwise would
have been.

The efficiency ratio is noninterest expense divided by total revenue (net interest income and noninterest income).

(2)

See Note 25 (Regulatory and Agency Capital Requirements) to Financial Statements in this Report for additional information.

(3)

Due to the Wachovia transaction that closed on December 31, 2008, the Tier 1 leverage ratio, which considers period-end Tier 1 capital and quarterly averages in the computation of the ratio,
does not reflect average assets of Wachovia for the full period ended December 31, 2008.

(4)

See the Capital Management section in this Report for additional information.

(5)

Dividends declared per common share as a percentage of earnings per common share.

(6)

Based on daily prices reported on the New York Stock Exchange Composite Transaction Reporting System.

37

Earnings Performance

Net income for 2010 was $12.4 billion ($2.21 diluted per share) with $11.6 billion
applicable to common stock, compared with net income of $12.3 billion ($1.75 diluted per share)
with $8.0 billion applicable to common stock for 2009. Preferred stock dividends and accretion of
preferred stock discount included $3.5 billion in 2009 for Series D preferred stock issued to the
U.S. Treasury Department in 2008, which reduced 2009 diluted earnings by $0.76 per share. These
preferred shares were redeemed December 23, 2009, when we repaid the U.S. Treasury Departments
TARP preferred stock investment.

Our 2010 earnings were influenced by a slow recovery from the recession that dominated 2009
and most of 2008 and by a continuation of a low rate environment. These economic conditions caused
declining loan demand, solid deposit generation and continued elevated credit losses. Earnings for
2009 were influenced by the worsening of the recession that began in 2008, and low market rates.
Both 2010 and 2009 were affected by merger integration costs.

Revenue, the sum of net interest income and noninterest income, was $85.2 billion in 2010
compared with $88.7 billion in 2009 and $41.9 billion in 2008. In 2010, net interest income of
$44.8 billion represented 53% of revenue, compared with $46.3 billion (52%) in 2009 and $25.1
billion (60%) in 2008.

Noninterest income was relatively stable in 2010 at $40.5 billion, representing 47% of
revenue, compared with $42.4 billion (48%) in 2009 and $16.7 billion (40%) in 2008. The increase in
2009 to 48% from 40% in 2008 was primarily due to a higher percentage of trust and investment fees
(11% in 2009, up from 7% in 2008) and very strong mortgage banking results (14% in 2009, up from 6%
in 2008, predominantly from legacy Wells Fargo).

Noninterest expense was $50.5 billion in 2010, compared with $49.0 billion in 2009 and $22.6
billion in 2008. Noninterest expense as a percentage of revenue was 59% in 2010, 55% in 2009 and
54% in 2008. Noninterest expense for 2010 included $1.9 billion of Wachovia merger-related
integration expense compared with $895 million in 2009.

Table 3 presents the components of revenue and noninterest expense as a percentage of revenue
for year-over-year results.

38

Table 3: Net Interest Income, Noninterest Income and Noninterest Expense as a Percentage of Revenue

Year ended December 31

,

% of

% of

% of

(in millions)

2010

revenue

2009

revenue

2008

revenue

Interest income

Trading assets

$

1,121

1

%

$

944

1

%

$

189



%

Securities available for sale

10,236

12

11,941

13

5,577

13

Mortgages held for sale (MHFS)

1,736

2

1,930

2

1,573

4

Loans held for sale (LHFS)

101



183



48



Loans

39,808

47

41,659

47

27,651

66

Other interest income

437

1

336



181



Total interest income

53,439

63

56,993

64

35,219

84

Interest expense

Deposits

2,832

3

3,774

4

4,521

11

Short-term borrowings

106



231



1,478

4

Long-term debt

4,888

6

5,786

7

3,789

9

Other interest expense

227



172







Total interest expense

8,053

9

9,963

11

9,788

23

Net interest income (on a taxable-equivalent basis)

45,386

53

47,030

53

25,431

61

Taxable-equivalent adjustment

(629

)

(1

)

(706

)

(1

)

(288

)

(1

)

Net interest income

44,757

53

46,324

52

25,143

60

Noninterest income

Service charges on deposit accounts

4,916

6

5,741

6

3,190

8

Trust and investment fees (1)

10,934

13

9,735

11

2,924

7

Card fees

3,652

4

3,683

4

2,336

6

Other fees (1)

3,990

5

3,804

4

2,097

5

Mortgage banking (1)

9,737

11

12,028

14

2,525

6

Insurance

2,126

2

2,126

2

1,830

4

Net gains from trading activities

1,648

2

2,674

3

275

1

Net gains (losses) on debt securities available for sale

(324

)



(127

)



1,037

2

Net gains (losses) from equity investments

779

1

185



(757

)

(2

)

Operating leases

815

1

685

1

427

1

Other

2,180

3

1,828

2

850

2

Total noninterest income

40,453

47

42,362

48

16,734

40

Noninterest expense

Salaries

13,869

16

13,757

16

8,260

20

Commission and incentive compensation

8,692

10

8,021

9

2,676

6

Employee benefits

4,651

5

4,689

5

2,004

5

Equipment

2,636

3

2,506

3

1,357

3

Net occupancy

3,030

4

3,127

4

1,619

4

Core deposit and other intangibles

2,199

3

2,577

3

186



FDIC and other deposit assessments

1,197

1

1,849

2

120



Other (2)

14,182

17

12,494

14

6,376

15

Total noninterest expense

50,456

59

49,020

55

22,598

54

Revenue

$

85,210

$

88,686

$

41,877

(1)

See Table 7  Noninterest Income in this Report for additional detail.

(2)

See Table 8  Noninterest Expense in this Report for additional detail.

39

Earnings Performance (continued)

Net Interest Income

Net interest income is the interest earned on debt securities, loans (including yield-related
loan fees) and other interest-earning assets minus the interest paid for deposits, short-term
borrowings and long-term debt. The net interest margin is the average yield on earning assets minus
the average interest rate paid for deposits and our other sources of funding. Net interest income
and the net interest margin are presented on a taxable-equivalent basis in Table 5 to consistently
reflect income from taxable and tax-exempt loans and securities based on a 35% federal statutory
tax rate.

Net interest income on a taxable-equivalent basis was $45.4 billion in 2010, compared with
$47.0 billion in 2009, and $25.4 billion in 2008. The net interest margin was 4.26% in 2010, down 2
basis points from 4.28% in 2009 and 2009 was down 55 basis points from 4.83% in 2008. During 2010,
net interest income was affected by prepayments of higher yielding mortgage-backed securities,
relatively soft commercial loan demand, and planned runoff of liquidating loan portfolios. The
impact of these factors was mitigated by disciplined deposit pricing and reduced market funding
costs. For 2009, changes in net interest income from 2008 were primarily due to the impact of
acquiring Wachovia. Although the addition of Wachovia increased earning assets and net interest
income, it decreased the net interest margin because Wachovias net interest margin was lower than
that of legacy Wells Fargo.

Table 4 presents the components of earning assets and funding sources as a percentage of
earning assets to provide a more meaningful analysis of year-over-year changes that influenced net
interest income.

The mix of earning assets and their yields are important drivers of net interest income.
During 2010, there were slight shifts in our earning asset mix from loans and investments to more
liquid assets. Although total loans increased during fourth quarter 2010, the soft loan demand
earlier in 2010 and in 2009, as well as the impact of liquidating certain loan portfolios, reduced
average loans in 2010 to 72% of average earning assets from 75% for 2009 and from 76% in 2008.
Also, average mortgage-backed securities (MBS) dropped to 10% in 2010 from 12% in 2009 and 13% in
2008. Average short-term investments and trading account assets increased to 9% in 2010 from 4% in
2009 and 2% in 2008.

Average interest-bearing deposits increased to 59% of average earning assets for 2010, from
58% for 2009 and 51% for 2008. Average short-term borrowings decreased to 4% of average earning
assets from 5% for 2009 and 13% for 2008. Average interest-bearing deposits increased as a
percentage of funding for earning assets in 2010, yet the cost of deposits declined significantly
as the mix shifted from higher cost certificates of deposit to checking and savings products, which
were at lower yields in 2010 due to the prolonged low interest rate environment. Core deposits are
a low-cost source of funding and thus an important contributor to growth in net interest income and
the net interest margin. Core deposits include noninterest-bearing deposits, interest-bearing
checking, savings certificates, certain market rate and other savings, and certain foreign deposits
(Eurodollar sweep balances). Average core deposits rose to $772.0 billion in 2010 from $762.5
billion in 2009 and funded 100% and 93% of average loans, respectively. In 2008, core deposits of
legacy Wells Fargo funded 82% of average loans. About 90% of our core deposits are now in checking
and savings deposits, one of the highest percentages in the industry.

Table 5 presents the individual components of net interest income and the net interest margin.
The effect on interest income and costs of earning asset and funding mix changes described above,
combined with rate changes during 2010, are analyzed in Table 6.

40

Table 4: Average Earning Assets and Funding Sources as a Percentage of Average Earning Assets

Net interest margin and net interest income
on a taxable-equivalent basis (7)

4.26

%

$

45,386

4.28

%

$

47,030

Noninterest-earning assets

Cash and due from banks

$

17,618

19,218

Goodwill

24,824

23,997

Other (8)

112,540

122,515

Total noninterest-earning assets

$

154,982

165,730

Noninterest-bearing funding sources

Deposits

$

183,008

171,712

Other liabilities

47,877

48,193

Total equity

122,238

117,879

Noninterest-bearing funding sources used to
fund earning assets

(198,141

)

(172,054

)

Net noninterest-bearing funding sources

$

154,982

165,730

Total assets

$

1,226,938

1,262,354

(1)

Because the Wachovia acquisition was completed at the end of 2008, Wachovias assets and
liabilities are included in average balances, and Wachovias results are reflected in interest
income/expense beginning in 2009.

(2)

Our average prime rate was 3.25%, 3.25%, 5.09%, 8.05%, and 7.96% for 2010, 2009, 2008, 2007,
and 2006, respectively. The average three-month London Interbank Offered Rate (LIBOR) was
0.34%, 0.69%, 2.93%, 5.30%, and 5.20% for the same years, respectively.

(3)

Interest rates and amounts include the effects of hedge and risk management activities
associated with the respective asset and liability categories.

(4)

Yields and rates are based on
interest income/expense amounts for the period, annualized based on the accrual basis for the
respective accounts. The average balance amounts include the effects of any unrealized gain or
loss marks but those marks carried in other comprehensive income are not included in yield
determination of affected earning assets. Thus yields are based on amortized cost balances
computed on a settlement date basis.

Nonaccrual loans and related income are included in their respective loan categories.

(7)

Includes taxable-equivalent adjustments of $629 million, $706 million, $288 million, $146
million and $116 million for 2010, 2009, 2008, 2007 and 2006, respectively, primarily related
to tax-exempt income on certain loans and securities. The federal statutory tax rate utilized
was 35% for the periods presented.

(8)

See Note 7 (Premises, Equipment, Lease Commitments and Other Assets) to Financial Statements
in this Report for detail of balances of other noninterest-earning assets at December 31, 2010
and 2009.

43

Earnings Performance (continued)

Table 6 allocates the changes in net interest income on a taxable-equivalent basis to
changes in either average balances or average rates for both interest-earning assets and
interest-bearing liabilities. Because of the numerous simultaneous volume and rate changes during
any period, it is

not possible to precisely allocate such changes between volume and rate. For this table, changes
that are not solely due to either volume or rate are allocated to these categories in proportion to
the percentage changes in average volume and average rate.

Increase (decrease) in net interest income
on a taxable-equivalent basis

$

(1,723

)

79

(1,644

)

24,524

(2,925

)

21,599

44

Noninterest Income

Table 7: Noninterest Income

Year ended December 31

,

(in millions)

2010

2009

2008

Service charges on
deposit accounts

$

4,916

5,741

3,190

Trust and investment fees:

Trust, investment and IRA fees

4,038

3,588

2,161

Commissions and all other fees

6,896

6,147

763

Total trust and
investment fees

10,934

9,735

2,924

Card fees

3,652

3,683

2,336

Other fees:

Cash network fees

260

231

188

Charges and fees on loans

1,690

1,801

1,037

All other fees

2,040

1,772

872

Total other fees

3,990

3,804

2,097

Mortgage banking:

Servicing income, net

3,340

5,791

1,233

Net gains on mortgage loan origination/sales activities

6,397

6,237

1,292

Total mortgage banking

9,737

12,028

2,525

Insurance

2,126

2,126

1,830

Net gains from trading activities

1,648

2,674

275

Net gains (losses) on debt
securities available for sale

(324

)

(127

)

1,037

Net gains (losses) from
equity investments

779

185

(757

)

Operating leases

815

685

427

All other

2,180

1,828

850

Total

$

40,453

42,362

16,734

Noninterest income of $40.5 billion represented 47% of revenue for 2010 compared with $42.4
billion or, 48%, for 2009. The decrease from 2009 was primarily the net result of an increase in
trust and investment fees to 13% of 2010 revenues from 11% for 2009, offset by the decrease in
mortgage banking to 11% of 2010 revenues from 14% for 2009.

Our service charges on deposit accounts decreased in 2010 by $825 million from 2009, although
the deposit account portfolio increased for the year. This decrease was related to regulatory
changes to debit card and ATM overdraft practices announced by the Federal Reserve Board (FRB) in
fourth quarter 2009. In third quarter 2009, we also announced policy changes to help customers
limit overdraft and returned item fees. The combination of these changes reduced our 2010 fee
revenue by approximately $810 million.

We earn trust, investment and IRA (Individual Retirement Account) fees from managing and
administering assets, including mutual funds, corporate trust, personal trust, employee benefit
trust and agency assets. At December 31, 2010, these assets totaled $2.1 trillion, up 11% from $1.9
trillion at December 31, 2009. Trust, investment and IRA fees are largely based on a tiered scale
relative to the market value of the assets under management or administration. The fees increased
to $4.0 billion in 2010 from $3.6 billion a year ago.

We receive commissions and other fees for providing services to full-service and discount
brokerage customers. These fees increased to $6.9 billion in 2010 from $6.1 billion a year ago.
These fees include transactional commissions, which are based on the number of transactions
executed at the customers direction, and asset-based fees, which are based on the market value of
the customers assets. Brokerage client assets totaled $1.2 trillion at December 31, 2010, up 6%
from a year ago. Commissions and other fees also include fees from investment banking activities
including equity and bond underwriting.

Card fees were $3.7 billion in 2010, essentially flat from 2009. Legislative and regulatory
changes enacted in 2010 caused a reduction in card fee income, which was offset by growth in
purchase volume driven by improvements in the economy. The effect of the Credit Card Accountability
Responsibility and Disclosure Act of 2009 (the Card Act) on card fees is fully reflected in our
2010 results.

Mortgage banking noninterest income is generated by servicing activities and loan
origination/sales activities. This income was $9.7 billion in 2010, compared with $12.0 billion for
2009. The reduction in mortgage banking noninterest income was primarily driven by a $2.5 billion
decline in net servicing income, partially offset by a $160 million increase in net gains on
mortgage origination/sales.

Net servicing income includes both changes in the fair value of mortgage servicing rights
(MSRs) during the period as well as changes in the value of derivatives (economic hedges) used to
hedge the MSRs. Net servicing income for 2010 included a $1.5 billion net MSR valuation gain that
was recorded to earnings ($3.0 billion decrease in the fair value of the MSRs offset by a $4.5
billion hedge gain) and for 2009 included a $5.3 billion net MSR valuation gain ($1.5 billion
decrease in the fair value of MSRs offset by a $6.8 billion hedge gain). The $3.8 billion decline
in the net MSR valuation gain results for 2010 compared with 2009 was primarily due to a decline in
hedge carry income. See the Risk Management  Mortgage Banking Interest Rate and Market Risk
section of this Report for a detailed discussion of our MSRs risks and hedging approach. Our
portfolio of loans serviced for others was $1.84 trillion at December 31, 2010, and $1.88 trillion
at December 31, 2009. At December 31, 2010, the ratio of MSRs to related loans serviced for others
was 0.86%, compared with 0.91% at December 31, 2009.

Income from loan origination/sale activities was $6.4 billion in 2010 compared with $6.2
billion for 2009. The slight increase in 2010 was driven by higher margins on loan originations,
offset by lower loan origination volume and higher provision for loan repurchase losses.
Residential real estate originations were $386 billion in 2010 compared with $420 billion a year
ago and mortgage applications were $620 billion in 2010 compared with $651 billion in 2009. The 1-4
family first mortgage unclosed pipeline was $73 billion at December 31, 2010, and $57 billion at
December 31, 2009. For additional detail, see the Risk Management  Mortgage Banking Interest
Rate and Market Risk section and Note 1 (Summary of Significant Accounting Policies), Note 9
(Mortgage Banking Activities) and Note 16 (Fair Values of Assets and Liabilities) to Financial
Statements in this Report.

45

Earnings Performance (continued)

Net gains on mortgage loan origination/sales activities include the cost of any additions to
the mortgage repurchase liability. Mortgage loans are repurchased from third parties
based on standard representations and warranties and early payment default clauses in mortgage sale
contracts. Additions to the mortgage repurchase liability that were charged against net gains on
mortgage loan origination/sales activities during 2010 totaled $1.6 billion ($927 million for
2009), of which $144 million ($302 million for 2009) was related to our estimate of loss content
associated with loan sales during the year and $1.5 billion ($625 million for 2009) was for
subsequent increases in estimated losses on prior years loan sales because of the current economic
environment. For additional information about mortgage loan repurchases, see the Risk Management
 Credit Risk Management  Liability for Mortgage Loan Repurchase Losses section in this Report.

Income from trading activities was $1.6 billion in 2010, down from $2.7 billion a year ago.
This decrease reflects a return to a more normal trading environment from a year ago as well as a
continued reduction in risk levels while we continue to prioritize support for our customer-related
activities.

Net gains on debt and equity securities totaled $455 million for 2010 and $58 million for
2009, after other-than-temporary impairment (OTTI) write-downs of $940 million for 2010 and $1.7
billion for 2009.

Noninterest income of $42.4 billion in 2009 represented 48% of revenue, up from $16.7 billion
(40%) in 2008. The increase in noninterest income as a percentage of revenue was due to a higher
percentage of trust and investment fees (11% in 2009, up from 7% in 2008) with the addition of
Wells Fargo Advisors (formerly Wachovia Securities) retail brokerage business, Wachovia wealth
management and retirement, and reinsurance businesses, and also due to strong mortgage banking
results, primarily from legacy Wells Fargo (14% in 2009, up from 6% in 2008).

Noninterest Expense

Table 8: Noninterest Expense

Year ended December 31

,

(in millions)

2010

2009

2008

Salaries

$

13,869

13,757

8,260

Commission and incentive
compensation

8,692

8,021

2,676

Employee benefits

4,651

4,689

2,004

Equipment

2,636

2,506

1,357

Net occupancy

3,030

3,127

1,619

Core deposit and other intangibles

2,199

2,577

186

FDIC and other deposit
assessments

1,197

1,849

120

Outside professional services

2,370

1,982

847

Contract services

1,642

1,088

407

Foreclosed assets

1,537

1,071

414

Operating losses

1,258

875

142

Outside data processing

1,046

1,027

480

Postage, stationery and supplies

944

933

556

Travel and entertainment

783

575

447

Advertising and promotion

630

572

378

Telecommunications

596

610

321

Insurance

464

845

725

Operating leases

109

227

389

All other

2,803

2,689

1,270

Total

$

50,456

49,020

22,598

Noninterest expense increased $1.4 billion (3%) in 2010 over 2009, primarily due to merger
integration costs, Wells Fargo Financial restructuring costs and a charitable donation to the Wells
Fargo Foundation. The increase in 2009 over 2008 was predominantly due to the acquisition of
Wachovia, increased staffing and other costs related to problem loan modifications and workouts,
special deposit assessments and operating losses.

Merger integration costs totaled $1.9 billion in 2010 and $1.1 billion in 2009, and primarily
contributed to the increases in outside professional and contract services for both years. The
acquisition of Wachovia resulted in an expanded geographic platform in our banking businesses and
added capabilities in businesses such as retail brokerage, asset management and investment banking.
As part of our integration investment to enhance both the short- and long-term benefits to our
customers, we added platform team members in the Eastern market to align Wachovias banking stores
with Wells Fargos sales and service model. We completed the second year of our merger integration,
converting 749 Wachovia stores in Alabama, Arizona, California, Georgia, Illinois, Kansas,
Mississippi, Nevada, Tennessee and Texas. We migrated major processing systems for credit card,
mortgage, trust, and mutual funds. We expect to substantially complete our integration of Wachovia
by the end of 2011.

In July 2010, we announced the restructuring of our Wells Fargo Financial consumer finance
division, including the closing of 638 Wells Fargo Financial stores, realigning this business into
other Wells Fargo business units and transitioning employees into other parts of our organization.
The restructuring costs totaled $161 million, predominantly for severance and store closures.

46

Commission and incentive compensation expense increased proportionately more than salaries in
both 2010 and 2009, due to higher revenues generated by businesses with revenue-based compensation,
including the retail securities, brokerage and mortgage businesses.

Federal Deposit Insurance Corporation (FDIC) and other deposit assessments decreased in 2010
from 2009, predominantly due to a midyear 2009 FDIC special assessment of $565 million.

Problem loans and foreclosures increased workout-related salaries and foreclosure costs in
both 2010 and 2009. Workout-related costs were influenced in both years by the higher volume of
mortgage loan modifications driven by both federal and our own proprietary loan modification
programs designed to help customers stay in their homes. Foreclosure costs have been affected by
the high volume of foreclosed properties and the length of time the properties remained in
inventory. During 2010, we began to see a decline in nonperforming loans and other indications of
improvement in credit quality.

We continued to support our communities by making a $400 million charitable contribution to
the Wells Fargo Foundation in 2010, covering three years of estimated future funding.

Income Tax Expense

The 2010 annual effective tax rate was 33.9% compared with 30.3% in 2009 and 18.5% in 2008. The
increase in 2010 was primarily due to the new health care legislation and fewer favorable
settlements with tax authorities. The increase in 2009 was primarily due to higher pre-tax earnings
and increased tax expense (with a comparable increase in interest income) associated with purchase
accounting for leveraged leases, partially offset by higher levels of tax exempt income, tax
credits and the impact of changes in our liability for uncertain tax positions. We recognized a net
tax benefit of approximately $150 million and $200 million during the fourth quarter and year-ended
December 31, 2009, respectively, primarily related to changes in our uncertain tax positions, due
to federal and state income tax settlements.

Effective January 1, 2009, we adopted new accounting guidance that changed the way
noncontrolling interests are presented in the income statement such that the consolidated income
statement includes amounts from both Wells Fargo interests and the noncontrolling interests. As a
result, our effective tax rate is calculated by dividing income tax expense by income before income
tax expense less the net income from noncontrolling interests.

47

Earnings Performance (continued)

Operating Segment Results

We define our operating segments by product and customer. In first quarter 2010, we conformed
certain funding and allocation methodologies of Wachovia to those of Wells Fargo; in addition
integration expense related to mergers other than the Wachovia merger is now included in the
segment results. In fourth quarter 2010, we aligned certain lending businesses into Wholesale
Banking from Community Banking to reflect our previously

announced restructuring of Wells Fargo
Financial. Prior periods have been revised to reflect these changes. Table 9 and the
following discussion present our results by operating segment. For a more complete description of
our operating segments, including additional financial information and the underlying management
accounting process, see Note 23 (Operating Segments) to Financial Statements in this Report.

Table 9: Operating Segment Results  Highlights

Year ended December 31

,

Wealth, Brokerage

Community Banking

Wholesale Banking

and Retirement

(in billions)

2010

2009

2010

2009

2010

2009

Revenue

$

54.7

60.5

22.2

20.6

11.7

10.8

Net income

7.1

8.9

5.8

3.9

1.0

0.5

Average loans

530.1

552.7

230.5

260.2

43.0

45.7

Average core deposits

536.4

552.8

170.0

147.3

121.2

114.2

Community Banking offers a complete line of diversified financial products and services
for consumers and small businesses including investment, insurance and trust services in 39 states
and D.C., and mortgage and home equity loans in all 50 states and D.C. through its Regional Banking
and Wells Fargo Home Mortgage business units.

Community Banking reported net income of $7.1 billion and revenue of $54.7 billion in 2010.
Revenue declined from 2009 driven primarily by a decrease in mortgage banking income compared with
a record year in 2009 (originations of $420 billion in 2009 compared with $384 billion in 2010), as
well as lower deposit service charges due to changes to Regulation E and the planned reduction in
certain liquidating loan portfolios. Core deposits declined due to planned certificates of deposit
(CD) run-off; however, we continued to grow low cost deposits. We saw strong growth in the number
of consumer and business checking accounts (up 7.5% and 4.8%, respectively, from December 31,
2009). Noninterest expense was flat from 2009, with Wells Fargo Financial restructuring costs and
higher charitable contributions offset by continued expense management and realization of merger
synergies. To benefit our customers we continued to add platform team members in regional bankings
Eastern markets as we aligned Wachovia banking stores with the Wells Fargo sales and service model.
The provision for credit losses decreased $4.1 billion from 2009 and credit quality indicators in
most of our consumer and commercial loan portfolios were either stable or continued to improve. Net
credit losses declined in almost all portfolios and we released $1.4 billion in reserves in 2010
compared with a $2.2 billion reserve build in 2009.

Wholesale Banking provides financial solutions across the U.S. and globally to middle market and
large corporate customers with annual revenue generally in excess of $20 million. Products and
businesses include commercial banking, investment banking and capital markets, securities
investment, government and institutional banking, corporate

On the strength of increasing credit demands from middle market and international businesses,
solid investment banking and capital markets performance, and a modest rebound in commercial
mortgages, Wholesale Banking generated earnings of $5.8 billion, up 49% from 2009, with revenue of
$22.2 billion, up 8% from 2009. Growth in core deposits, up 15% from 2009, and the related increase
in fees and commissions, helped offset the impact on loan revenues of lower loan balances in 2010.
Total noninterest expense increased 5% as continued focus on expense management helped keep the
rate of expense growth below the rate of revenue growth, resulting in an overall operating
efficiency ratio of 51% versus 52% in 2009. Loan loss rates also improved from 2009 levels, which
allowed for a $561 million release of the allowance for loan losses in 2010.

Our financial results in 2010 were driven by the performance of our many diverse businesses,
including the real estate capital markets group, which re-entered the commercial MBS securitization
market with its first deal in three years; investment banking, which helped drive more than $172
million of growth in trust and investment fees; commercial mortgage servicing, which capitalized on
its strong competitive position to win the servicing rights on more than 70% of new commercial MBS
deals; and commercial real estate, where re-pricing efforts lifted loan portfolio yields 49 basis
points to add $180 million in revenue growth.

Wholesale Bankings performance was also supported by additional efficiencies created by the
merger with Wachovia. Key achievements included funds management group consolidations, leasing and
equipment finance system migrations, Commercial Electronic Office®
(CEO®) access for Wachovia Global Connect customers, and building of treasury
product solutions to prepare for full customer migrations in 2011.

48

Wealth, Brokerage and Retirement provides a full range of financial advisory services to clients
using a planning approach to meet each clients needs. Wealth Management provides
affluent and high net worth clients with a complete range of wealth management solutions including
financial planning, private banking, credit, investment management and trust. Family Wealth meets
the unique needs of the ultra high net worth customers. Brokerage serves customers advisory,
brokerage and financial needs as part of one of the largest full-service brokerage firms in the
United States. Retirement is a national leader in providing institutional retirement and trust
services (including 401(k) and pension plan record keeping) for businesses, retail retirement
solutions for individuals, and reinsurance services for the life insurance industry.

Wealth, Brokerage and Retirement earned net income of $1.0 billion in 2010. Revenue of $11.7
billion included a mix of brokerage commissions, asset-based fees and net interest income. Net
interest income growth was dampened by the continued low short-term interest rate environment.
Equity market gains helped drive growth in fee income. During 2010 client assets grew 6% from a
year ago, including managed account asset growth of 20%. Deposit balances grew 10% during 2010.
Expenses increased slightly from the prior year due to growth in broker commissions partially
offset by the realization of merger synergies during the year and the loss reserve for the auction
rate securities (ARS) legal settlement in 2009. The wealth, brokerage and retirement businesses
have strengthened partnerships across the Company, working with Community Banking and Wholesale
Banking to provide financial solutions for clients.

Balance Sheet Analysis

During 2010, our total assets grew 1%, funded by core deposit growth of 2% and internal
capital generation, partially offset by a reduction in our long-term borrowings. As a result of
continued soft loan demand, our loans decreased 3% and most of our asset growth was therefore in
more liquid earning assets. However, the strength of our business model continued to produce high
rates of internal capital generation as reflected in our improved capital ratios. Tier 1 capital
increased to 11.16% as a percentage of total risk-weighted assets, total capital to 15.01%, Tier 1
leverage to 9.19% and Tier 1 common equity to 8.30% at

December 31, 2010, up from 9.25%, 13.26%,
7.87% and 6.46%, respectively, at December 31, 2009. At December 31, 2010, core deposits funded
105% of the loan portfolio, and we have significant capacity to add loans and higher yielding
long-term MBS to generate future revenue and earnings growth.

The following discussion provides additional information about the major components of our
balance sheet. Information about changes in our asset mix and about our capital is included in the
Earnings Performance  Net Interest Income and Capital Management sections of this Report.

Securities Available for Sale

Table 10: Securities Available for Sale  Summary

December 31

,

2010

2009

Net

Net

unrealized

Fair

unrealized

Fair

(in millions)

Cost

gain

value

Cost

gain

value

Debt securities available for sale

$

160,071

7,394

167,465

162,314

4,804

167,118

Marketable equity securities

4,258

931

5,189

4,749

843

5,592

Total securities available for sale

$

164,329

8,325

172,654

167,063

5,647

172,710

Table 10 presents a summary of our securities available-for-sale portfolio. Securities
available for sale consist of both debt and marketable equity securities. We hold debt securities
available for sale primarily for liquidity, interest rate risk management and long-term yield
enhancement. Accordingly, this portfolio consists primarily of very liquid, high-quality federal
agency debt and privately issued MBS. The total net unrealized gains on securities available for
sale were $8.3 billion at December 31, 2010, up from net unrealized gains of $5.6 billion at
December 31, 2009, due to a general decline in long-term yields and narrowing of credit spreads.

We analyze securities for OTTI quarterly, or more often if a potential loss-triggering event
occurs. Of the $692 million OTTI write-downs in 2010, $672 million related to debt securities and

$20 million to equity securities. For a discussion of our OTTI accounting policies and underlying
considerations and analysis see Note 1 (Summary of Significant Accounting Policies  Securities)
and Note 5 (Securities Available for Sale) to Financial Statements in this Report.

At December 31, 2010, debt securities available for sale included $19 billion of municipal
bonds, of which 84% were rated A- or better, based on external, and in some cases internal,
ratings. Additionally, some of these bonds are guaranteed against loss by bond insurers. These
bonds are predominantly investment grade and were generally underwritten in accordance with our own
investment standards prior to the determination to purchase, without relying on the bond insurers
guarantee in making the investment decision. These municipal bonds will continue to be monitored as part of

49

Balance Sheet Analysis (continued)

our on-going impairment analysis of
our securities available for sale.

The weighted-average expected maturity of debt securities available for sale was 6.1 years at
December 31, 2010. Because 69% of this portfolio is MBS, the expected remaining maturity may differ
from contractual maturity because borrowers generally have the right to prepay obligations before
the underlying mortgages mature. The estimated effect of a 200 basis point increase or decrease in
interest rates on the fair value and the expected remaining maturity of the MBS available for sale
are shown in Table 11.

Table 11: Mortgage-Backed Securities

Expected

Net

remaining

Fair

unrealized

maturity

(in billions)

value

gain (loss)

(in years)

At December 31, 2010

$

115.8

5.9

4.5

At December 31, 2010, assuming a 200 basis point:

Increase in interest rates

105.8

(4.1)

5.7

Decrease in interest rates

124.3

14.4

3.3

See Note 5 (Securities Available for Sale) to Financial Statements in this Report for
securities available for sale by security type.

Loan Portfolio

Table 12: Loan Portfolios

December 31

,

(in millions)

2010

2009

2008

2007

2006

Commercial

$

322,058

336,465

389,964

160,282

128,731

Consumer

435,209

446,305

474,866

221,913

190,385

Total loans

$

757,267

782,770

864,830

382,195

319,116

Balances decreased during 2010 for nearly all types of loans as demand remained soft in
response to economic conditions. Non-strategic and liquidating loan portfolios decreased by $26.3
billion from 2009. Table 12 provides a breakdown by loan portfolio.

A discussion of average loan balances and a comparative detail of average loan balances is
included in Table 5 under Earnings Performance  Net Interest Income earlier in this Report.
Year-end balances and other loan related information are in Note 6 (Loans and Allowance for Credit
Losses) to Financial Statements in this Report.

Effective June 30, 2010, real estate construction outstanding balances and all other related
data include certain commercial real estate (CRE) secured loans acquired from Wachovia previously
classified as real estate mortgage. Balances for 2009 and 2008 have been revised to conform with
the current presentation.

Table 13 shows contractual loan maturities for selected loan categories and sensitivities of those loans to changes in interest rates.

50

Table 13: Maturities for Selected Loan Categories

December 31

,

2010

2009

After

After

Within

one year

After

Within

one year

After

one

through

five

one

through

five

(in millions)

year

five years

years

Total

year

five years

years

Total

Selected loan maturities:

Commercial and industrial

$

39,576

90,497

21,211

151,284

44,919

91,951

21,482

158,352

Real estate mortgage

27,544

44,627

27,264

99,435

25,339

42,179

30,009

97,527

Real estate construction

15,009

9,189

1,135

25,333

23,362

12,188

1,428

36,978

Foreign

25,087

5,508

2,317

32,912

21,266

5,715

2,417

29,398

Total selected loans

$

107,216

149,821

51,927

308,964

114,886

152,033

55,336

322,255

Distribution of loans due
after one year to changes in interest rates:

Report. Total core deposits were $798.2 billion at December 31, 2010, up $17.5 billion from
$780.7 billion at December 31, 2009. We continued to gain new deposit customers and deepen our
relationships with existing customers.

Table 14: Deposits

December 31

,

% of

% of

total

total

%

(in millions)

2010

deposits

2009

deposits

Change

Noninterest-bearing

$

191,231

23

%

$

181,356

22

%

5

Interest-bearing checking

63,440

7

63,225

8



Market rate and other savings

431,883

51

402,448

49

7

Savings certificates

77,292

9

100,857

12

(23

)

Foreign deposits (1)

34,346

4

32,851

4

5

Core deposits

798,192

94

780,737

95

2

Other time and savings deposits

19,412

2

16,142

2

20

Other foreign deposits

30,338

4

27,139

3

12

Total deposits

$

847,942

100

%

$

824,018

100

%

3

(1)

Reflects Eurodollar sweep balances included in core deposits.

51

Balance Sheet Analysis (continued)

Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not
recorded in the balance sheet, or may be recorded in the balance sheet in amounts that are
different from the full contract or notional amount of the transaction. These transactions are
designed to (1) meet the financial needs of customers, (2) manage our credit, market or liquidity
risks, (3) diversify our funding sources, and/or (4) optimize capital.

Off-Balance Sheet Transactions with Unconsolidated Entities

We routinely enter into various types of on- and off-balance sheet transactions with special
purpose entities (SPEs), which are corporations, trusts or partnerships that are established for a
limited purpose. Historically, the majority of SPEs were formed in connection with securitization
transactions. For more information on securitizations, including sales proceeds and cash flows from
securitizations, see Note 8 (Securitizations and Variable Interest Entities) to Financial
Statements in this Report.

Newly Consolidated VIE Assets and Liabilities

Effective January 1, 2010, we adopted new consolidation accounting guidance and, accordingly,
consolidated certain variable interest entities (VIEs) that were not included in our consolidated
financial statements at December 31, 2009. On January 1, 2010, we recorded the assets and
liabilities of the newly consolidated VIEs and derecognized our existing interests in those VIEs.
We also recorded a $183 million increase to beginning retained earnings as a cumulative effect
adjustment and recorded a $173 million increase to other comprehensive income (OCI).

Table 15 presents the net incremental assets recorded on our balance sheet by structure type
upon adoption of new consolidation accounting guidance.

Represents certain of our residential
mortgage loans that are not guaranteed by
government-sponsored entities (GSEs)
(nonconforming).

In accordance with the transition provisions of the new consolidation accounting guidance,
we initially recorded newly consolidated VIE assets and liabilities on a basis consistent with our
accounting for respective assets at their amortized cost basis, except for those VIEs for which the
fair value option was elected. The carrying amount for loans approximates the outstanding unpaid
principal balance, adjusted for allowance for loan losses. Short-term borrowings and long-term debt
approximate the outstanding principal amount due to creditors.

Upon adoption of new consolidation accounting guidance on January 1, 2010, we elected fair
value option accounting for certain nonconforming residential mortgage loan securitization VIEs.
This election requires us to recognize the VIEs eligible assets and liabilities on the balance
sheet at fair value with changes in fair value recognized in earnings.

Such eligible assets and liabilities consisted primarily of loans and long-term debt,
respectively. The fair value option was elected for those newly consolidated VIEs for which our
interests, prior to January 1, 2010, were predominantly carried at fair value with changes in fair
value recorded to earnings. Accordingly, the fair value option was elected to effectively continue
fair value accounting through earnings for those interests. Conversely, fair value option was not
elected for those newly consolidated VIEs that did not share these characteristics. At January 1,
2010, the fair value for both loans and long-term debt for which the fair value option was elected
was $1.0 billion each. The incremental impact of electing fair value option (compared to not
electing) on the cumulative effect adjustment to retained earnings was an increase of $15 million.

Guarantees and Certain Contingent Arrangements

Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset,
liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other
indemnifications, liquidity agreements,
written put options, recourse obligations, residual value guarantees and contingent consideration.

For more information on guarantees and certain contingent arrangements, see Note 14 (Guarantees and Legal Actions) to Financial
Statements in this Report.

52

Contractual Obligations

In addition to the contractual commitments and arrangements previously described, which,
depending on the nature of the obligation, may or may not require use of our resources, we enter
into other contractual obligations in the ordinary course of business, including debt issuances for
the funding of operations and leases for premises and equipment.

Table 16 summarizes these contractual obligations as of December 31, 2010, excluding
obligations for short-term borrowing arrangements and pension and postretirement benefit plans.
More information on those obligations is in Note 12 (Short-Term Borrowings) and Note 19 (Employee
Benefits and Other Expenses) to Financial Statements in this Report.

Table 16: Contractual Obligations

Note(s) to

More

Financial

Less than

1-3

3-5

than

Indeterminate

(in millions)

Statements

1 year

years

years

5 years

maturity

Total

Contractual payments by period:

Deposits

11

$

108,232

33,601

10,855

2,500

692,754

(1)

847,942

Long-term debt (2)

7,13

36,223

35,529

19,585

65,646



156,983

Operating leases

7

1,134

2,334

1,732

3,405



8,605

Unrecognized tax obligations

20

22







2,630

2,652

Commitments to purchase debt securities

1,153

650







1,803

Purchase obligations (3)

383

278

40

1



702

Total contractual obligations

$

147,147

72,392

32,212

71,552

695,384

1,018,687

(1)

Includes interest-bearing and noninterest-bearing checking, and market rate and other savings accounts.

(2)

Includes obligations under capital leases of $26 million.

(3)

Represents agreements to purchase goods or services.

We are subject to the income tax laws of the U.S., its states and municipalities, and
those of the foreign jurisdictions in which we operate. We have various unrecognized tax
obligations related to these operations that may require future cash tax payments to various taxing
authorities. Because of their uncertain nature, the expected timing and amounts of these payments
generally are not reasonably estimable or determinable. We attempt to estimate the amount payable
in the next 12 months based on the status of our tax examinations and settlement discussions. See
Note 20 (Income Taxes) to Financial Statements in this Report for more information.

We enter into derivatives, which create contractual obligations, as part of our interest rate
risk management process for our customers or for other trading activities. See the Risk Management
 Asset/Liability section and Note 15 (Derivatives) to Financial Statements in this Report for
more information.

Transactions with Related Parties

The Related Party Disclosures topic of the Codification requires disclosure of material related
party transactions, other than compensation arrangements, expense allowances and other similar
items in the ordinary course of business. We had no related party transactions required to be
reported for the years ended December 31, 2010, 2009 and 2008.

53

Risk Management

All financial institutions must manage and control a variety of business risks that can
significantly affect their financial performance. Key among those are credit, asset/liability and
market risk.

A key to our credit risk management is adhering to a well controlled underwriting process,
which we believe is appropriate for the needs of our customers as well as investors who purchase
the loans or securities collateralized by the loans. We approve applications and make loans only if
we believe the customer has the ability to repay the loan or line of credit according to all its
terms. Our underwriting of loans collateralized by residential real property includes appraisals or
automated valuation models (AVMs) to support property values. AVMs are computer-based tools used to
estimate the market value of homes. AVMs are a lower-cost alternative to appraisals and support
valuations of large numbers of properties in a short period of time. AVMs estimate property values
based on processing large volumes of market data including market comparables and price trends for
local market areas. The primary risk associated with the use of AVMs is that the value of an
individual property may vary significantly from the average for the market area. We have processes
to periodically validate AVMs and specific risk management guidelines addressing the circumstances
when AVMs may be used. Generally AVMs are used in underwriting to support property values on loan
originations only where the loan amount is under $250,000. For underwriting residential property
loans of $250,000 or more, we require property visitation appraisals by qualified independent
appraisers.

We continually evaluate and modify our credit policies to address appropriate levels of risk.
Accordingly, from time to time, we designate certain portfolios and loan products as non-strategic
or high risk to limit or cease their continued origination as we actively work to limit losses and
reduce our exposures.

Table 17 identifies our non-strategic and liquidating loan portfolios as of December 31, 2010,
2009 and 2008. These portfolios have decreased 32% since the merger with Wachovia at December 31,
2008, and decreased 19% from the end of 2009. The portfolios consist primarily of the Pick-a-Pay
mortgages portfolio and PCI loans acquired in our acquisition of Wachovia as well as some
portfolios from legacy Wells Fargo home equity and Wells Fargo Financial. The legacy Wells Fargo

Financial debt consolidation portfolio included $1.2 billion and $1.6 billion at December 31, 2010
and 2009, respectively, that was considered prime based on secondary market standards. The
remainder is non-prime but was originated with standards to reduce credit risk. These loans were
originated through our retail channel with documented income, LTV limits based on credit quality
and property characteristics, and risk-based pricing. In addition, the loans were originated
without teaser rates, interest-only or negative amortization features. Credit losses in the
portfolio have increased in the current economic environment compared with historical levels, but
performance has remained similar to prime portfolios in the industry with overall loss rates of
4.15% in 2010 on the entire portfolio. Analysis of the Pick-a-Pay and the commercial and industrial
and CRE domestic PCI portfolios is presented later in this section.

Table 17: Non-Strategic and Liquidating Loan Portfolios

Outstanding balance

December 31

,

(in billions)

2010

2009

2008

Commercial and industrial, CRE
and foreign PCIloans (1)(2)

$

7.9

13.0

18.7

Pick-a-Pay mortgage (1)

74.8

85.2

95.3

Liquidating home equity

6.9

8.4

10.3

Legacy Wells Fargo Financial
indirect auto

6.0

11.3

18.2

Legacy Wells Fargo Financial
debt consolidation (2)(3)

19.0

22.4

25.3

Other PCI loans (1)(2)

1.1

1.7

2.5

Total non-strategic and
liquidating loan portfolios

$

115.7

142.0

170.3

(1)

Net of purchase accounting adjustments related to PCI loans.

(2)

These portfolios were designated as non-strategic and liquidating in 2010. Prior periods have been
adjusted to reflect this change.

(3)

In July 2010, we announced the restructuring of our Wells Fargo Financial division and the exiting
of the origination of non-prime portfolio mortgage loans.

Measuring and monitoring our credit risk is an ongoing process that tracks delinquencies,
collateral values, FICO scores, economic trends by geographic areas, loan-level risk grading for
certain portfolios (typically commercial) and other indications of credit risk. Our credit risk
monitoring process is designed to enable early identification of developing risk and to support our
determination of an adequate allowance for credit losses. The following analysis reviews the
relevant concentrations and certain credit metrics of our significant portfolios. See Note 6 (Loans
and Allowance for Credit Losses) to Financial Statements in this Report for more analysis and
credit metric information.

54

COMMERCIAL REAL ESTATE (CRE)
The CRE portfolio consists of both CRE mortgages and CRE
construction loans. The combined CRE loans outstanding totaled $124.8 billion at December 31, 2010,
or 16% of total loans. Of the $124.8 billion, approximately $5.8 billion represents the net balance
of PCI CRE loans. CRE construction loans totaled $25.3 billion at December 31, 2010, or 3% of total
loans. CRE mortgage loans totaled $99.4 billion at December 31, 2010, or 13% of total loans, of
which over 40% is to owner-occupants, who historically have a low level of default. The portfolio
is diversified both geographically and by property type. The largest geographic concentrations are
found in California and Florida, which represented 23% and 11% of the total CRE portfolio,
respectively. By property type, the largest concentrations are office buildings at 23% and
industrial/warehouse at 11% of the portfolio.

The underwriting of CRE loans primarily focuses on cash flows and creditworthiness, in
addition to collateral valuations. To identify and manage newly emerging problem CRE loans, we
employ a high level of surveillance and regular customer interaction to understand and manage the
risks associated with these assets, including regular loan reviews and appraisal updates. As issues
are identified, management is engaged and dedicated workout groups are put in place to manage
problem assets. At December 31, 2010, the recorded investment in PCI CRE loans totaled $5.8
billion, down from $12.3 billion since the Wachovia acquisition at December 31, 2008, reflecting
the reduction resulting from loan resolutions and write-downs.

Table 18 summarizes CRE loans by state and property type with the related nonaccrual totals.
At December 31, 2010, the highest concentration of total loans by state was $28.2 billion in
California, more than double the next largest state concentration, and the related nonaccrual loans
totaled about $1.5 billion, or 5% of CRE loans in California. Office buildings, at $28.7 billion,
were the largest property type concentration, more than double the next largest, and the related
nonaccrual loans totaled $1.4 billion, or 5% of total CRE loans for office buildings. In aggregate,
nonaccrual loans totaled 7% of the non-PCI outstanding balance at December 31, 2010.

55

Risk
Management  Credit Risk Management (continued)

Table 18: CRE Loans by State and Property Type

December 31, 2010

Real estate mortgage

Real estate construction

Total

% of

Nonaccrual

Outstanding

Nonaccrual

Outstanding

Nonaccrual

Outstanding

total

(in millions)

loans

balance (1)

loans

balance (1)

loans

balance (1)

loans

By state:

PCI loans:

Florida

$



459



578



1,037

*

%

California



588



193



781

*

Georgia



301



250



551

*

North Carolina



180



353



533

*

New York



226



225



451

*

Other



1,101



1,350



2,451

(2)

*

Total PCI loans

$



2,855



2,949



5,804

*

%

All other loans:

California

$

1,172

23,780

375

3,648

1,547

27,428

4

%

Florida

912

10,023

412

2,286

1,324

12,309

2

Texas

376

6,523

165

2,186

541

8,709

1

North Carolina

346

4,663

254

1,477

600

6,140

*

New York

56

4,440

17

1,111

73

5,551

*

Virginia

49

3,574

147

1,512

196

5,086

*

Georgia

374

3,726

181

885

555

4,611

*

Arizona

259

3,445

140

726

399

4,171

*

Colorado

106

2,868

76

698

182

3,566

*

New Jersey

109

2,641

40

513

149

3,154

*

Other

1,468

30,897

869

7,342

2,337

38,239

(3)

5

Total all other loans

$

5,227

96,580

2,676

22,384

7,903

118,964

16

%

Total

$

5,227

99,435

2,676

25,333

7,903

124,768

16

%

By property:

PCI loans:

Office buildings

$



953



317



1,270

*

%

Apartments



565



704



1,269

*

1-4 family land



249



559



808

*

Retail (excluding shopping center)



341



90



431

*

1-4 family structure



29



353



382

*

Other



718



926



1,644

*

Total PCI loans

$



2,855



2,949



5,804

*

%

All other loans:

Office buildings

$

1,214

24,841

233

2,598

1,447

27,439

4

%

Industrial/warehouse

730

13,058

76

931

806

13,989

2

Real estate - other

576

11,853

61

691

637

12,544

2

Apartments

368

8,309

305

3,451

673

11,760

2

Retail (excluding shopping center)

591

9,628

126

868

717

10,496

1

Shopping center

363

6,578

270

1,622

633

8,200

1

Land (excluding 1-4 family)

41

524

671

7,013

712

7,537

1

Hotel/motel

469

5,916

74

999

543

6,915

*

Institutional

112

2,646

9

179

121

2,825

*

1-4 family land

157

328

514

2,255

671

2,583

*

Other

606

12,899

337

1,777

943

14,676

2

Total all other loans

$

5,227

96,580

2,676

22,384

7,903

118,964

16

%

Total

$

5,227

99,435

(4)

2,676

25,333

7,903

124,768

16

%

*

Less than 1%.

(1)

For PCI loans, amounts represent carrying value.

(2)

Includes 35 states; no state had loans in excess of $436 million.

(3)

Includes 40 states; no state had loans in excess of $3.1 billion.

(4)

Includes $40.0 billion of loans to owner-occupants where 51% or more of the property is used
in the conduct of their business.

56

COMMERCIAL AND INDUSTRIAL LOANS AND LEASE FINANCING For purposes of portfolio risk
management, we aggregate commercial and industrial loans and lease financing according to market
segmentation and standard industry codes. Table 19 summarizes commercial and industrial loans and
lease financing by industry with the related nonaccrual totals. While this portfolio has
experienced deterioration in the current credit cycle, we believe this portfolio has experienced
less credit deterioration than our CRE portfolios. For the year ended December 31, 2010, the
commercial and industrial loans and lease financing portfolios had (1) a lower percentage of loans
90 days or more past due and still accruing (0.19% at year end; 0.24% for CRE), (2) a lower
percentage of nonperforming loans to total loans outstanding (2.02% at year end; 6.33% for CRE),
and (3) a lower loss rate to average total loans (1.50% for the year; 1.67% for CRE). We believe
this portfolio is well underwritten and is diverse in its risk with relatively even concentrations
across several industries. A majority of our commercial and industrial loans and lease financing
portfolio is secured by short-term liquid assets, such as accounts receivable, inventory and
securities, as well as long-lived assets, such as equipment and other business assets. Our credit
risk management process for this portfolio primarily focuses on a customers ability to repay the
loan through their cash flow. Generally, the collateral securing this portfolio represents a
secondary source of repayment.

No other single category had loans in excess of $4.6 billion. The next largest categories
included public administration, hotel/restaurant, media, non-residential construction and
securities firms.

57

Risk Management  Credit Risk Management (continued)

During the recent credit cycle, we have experienced an increase in requests for
extensions of commercial and industrial and CRE loans, which have repayment guarantees. All
extensions granted are based on a re-underwriting of the loan and our assessment of the borrowers
ability to perform under the agreed-upon terms. At the time of extension, borrowers are generally
performing in accordance with the contractual loan terms. Extension terms generally range from six
to thirty-six months and may require that the borrower provide additional economic support in the
form of partial repayment, amortization or additional collateral or guarantees. In cases where the
value of collateral or financial condition of the borrower is insufficient to repay our loan, we
may rely upon the support of an outside repayment guarantee in providing the extension. In
considering the impairment status of the loan, we evaluate the collateral and future cash flows as
well as the anticipated support of any repayment guarantor. When performance under a loan is not
reasonably assured, including the performance of the guarantor, we place the loan on nonaccrual
status and we charge-off all or a portion of a loan based on the fair value of the collateral
securing the loan.

Our ability to seek performance under the guarantee is directly related to the guarantors
creditworthiness, capacity and willingness to perform, which is evaluated on an annual basis, or
more frequently as warranted. Our evaluation is based on the most current financial information
available and is focused on various key financial metrics, including net worth, leverage, and
current and future liquidity. We consider the guarantors reputation, creditworthiness, and
willingness to work with us based on our analysis as well as other lenders experience with the
guarantor. Our assessment of the guarantors credit strength is reflected in our loan risk ratings
for such loans. The loan risk rating is an important factor in our allowance methodology for
commercial and industrial and CRE loans.

REAL ESTATE 1-4 FAMILY FIRST MORTGAGE LOANS The concentrations of real estate 1-4 family
mortgage loans by state are presented in Table 20. Our real estate 1-4 family mortgage loans to
borrowers in California represented approximately 14% of total loans (3% of this amount were PCI
loans from Wachovia) at both December 31, 2010 and 2009, mostly within the larger metropolitan
areas, with no single area consisting of more than 3% of total loans. Changes in real estate values
and underlying economic or market conditions for these areas are monitored continuously within our
credit risk management process.

Some of our real estate 1-4 family mortgage loans (representing first mortgage and home equity
products) include an interest-only feature as part of the loan terms. At December 31, 2010, these
loans were approximately 25% of total loans, compared with 26% at the end of 2009. Substantially
all of these loans are considered to be prime or near prime. We believe we have manageable
adjustable-rate mortgage (ARM) reset risk across our Wells Fargo originated and owned mortgage loan
portfolios.

Table 20: Real Estate 1-4 Family Mortgage Loans by State

December 31, 2010

Real estate

Real estate

Total real

1-4 family

1-4 family

estate 1-4

% of

first

junior lien

family

total

(in millions)

mortgage

mortgage

mortgage

loans

PCI loans:

California

$

21,630

49

21,679

3

%

Florida

3,076

56

3,132

*

New Jersey

1,293

36

1,329

*

Other (1)

7,246

109

7,355

*

Total PCI loans

$

33,245

250

33,495

4

%

All other loans:

California

$

55,794

26,612

82,406

11

%

Florida

17,296

7,782

25,078

3

New Jersey

8,908

6,403

15,311

2

New York

8,169

3,709

11,878

2

Virginia

6,145

4,622

10,767

1

Pennsylvania

6,233

4,066

10,299

1

North Carolina

5,860

3,552

9,412

1

Texas

6,645

1,519

8,164

1

Georgia

4,886

3,472

8,358

1

Other (2)

77,054

34,162

111,216

15

Total all
other loans

$

196,990

95,899

292,889

39

%

Total

$

230,235

96,149

326,384

43

%

*

Less than 1%.

(1)

Consists of 45 states; no state had loans in excess of $759 million.

(2)

Consists of 41 states; no state had loans in excess of $7.2 billion. Includes $15.5 billion
in Government National Mortgage Association (GNMA) pool buyouts.

58

PURCHASED CREDIT-IMPAIRED (PCI) LOANS As of December 31, 2008, certain of the loans
acquired from Wachovia had evidence of credit deterioration since their origination, and it was
probable that we would not collect all contractually required principal and interest payments. Such
loans identified at the time of the acquisition were accounted for using the measurement provisions
for PCI loans. PCI loans were recorded at fair value at the date of acquisition, and the historical
allowance for credit losses related to these loans was not carried over.

PCI loans were written down to an amount estimated to be collectible. Accordingly, such loans
are not classified as nonaccrual, even though they may be contractually past due, because we expect
to fully collect the new carrying values of such loans (that is, the new cost basis arising out of
our purchase accounting).

A nonaccretable difference was established in purchase accounting for PCI loans to absorb
losses expected at that time on those loans. Amounts absorbed by the nonaccretable difference do
not affect the income statement or the allowance for credit losses.

Substantially all commercial and industrial, CRE and foreign PCI loans are accounted for as
individual loans. Conversely, Pick-a-Pay and other consumer PCI loans have been aggregated into
several pools based on common risk characteristics. Each pool is accounted for as a single asset
with a single composite interest rate and an aggregate expectation of cash flows.

Resolutions of loans may include sales of loans to third parties, receipt of payments in
settlement with the borrower, or

foreclosure of the collateral. Our policy is to remove an
individual loan from a pool based on comparing the amount received from its resolution with its
contractual amount. Any difference between these amounts is absorbed by the nonaccretable
difference. This removal method assumes that the amount received from resolution approximates pool
performance expectations. The remaining accretable yield balance is unaffected and any material
change in remaining effective yield caused by this removal method is addressed by our quarterly
cash flow evaluation process for each pool. For loans that are resolved by payment in full, there
is no release of the nonaccretable difference for the pool because there is no difference between
the amount received at resolution and the contractual amount of the loan. Modified PCI loans are
not removed from a pool even if those loans would otherwise be deemed troubled debt restructurings
(TDRs). Modified PCI loans that are accounted for individually are considered TDRs, and removed
from PCI accounting, if there has been a concession granted in excess of the original nonaccretable
difference.

During 2010, we recognized in income $989 million of nonaccretable difference related to
commercial PCI loans due to payoffs and dispositions of these loans. We also transferred $3.4
billion from the nonaccretable difference to the accretable yield, of which $2.4 billion was due to
sustained positive performance in the Pick-a-Pay portfolio evidenced through an increase in
expected cash flows. Table 21 provides an analysis of changes in the nonaccretable difference
related to principal that is not expected to be collected.

Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do
not reflect nonaccretable difference releases due to pool accounting for those loans, which assumes that the amount received approximates the pool performance expectations.

(2)

Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)

Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining
life of the loan or pool of loans.

(4)

Write-downs to net realizable value of PCI loans are absorbed by the nonaccretable difference when severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that
indicate there will be a loss of contractually due amounts upon final resolution of the loan.

59

Risk Management  Credit Risk Management (continued)

Since the Wachovia acquisition, we have released $5.3 billion in nonaccretable difference
for certain PCI loans and pools of loans, including $3.8 billion transferred from the nonaccretable
difference to the accretable yield and $1.5 billion released through loan resolutions. We have
provided $1.6 billion in the allowance for credit losses for certain PCI loans or pools of loans
that have had loss-related decreases to cash flows expected to be collected. The net result is a
$3.7 billion improvement in our initial projected losses on all PCI loans.

At December 31, 2010, the allowance for credit losses in excess of nonaccretable difference on
certain PCI loans was $298 million. The allowance is necessary to absorb decreases in cash flows
expected to be collected since acquisition and primarily relates to individual PCI loans. Table 22
analyzes the actual and projected loss results on PCI loans since the acquisition of Wachovia on
December 31, 2008, through December 31, 2010.

Total releases of nonaccretable difference due to better than expected losses

2,269

2,383

678

5,330

Provision for worse than originally expected losses (4)

(1,562

)



(62

)

(1,624

)

Actual and projected losses on PCI loans better than originally expected

$

707

2,383

616

3,706

(1)

Release of the nonaccretable difference for settlement with borrower, on individually accounted PCI loans, increases interest income in the period of settlement. Pick-a-Pay and Other consumer PCI loans do not reflect nonaccretable difference
releases due to pool accounting for those loans, which
assumes that the amount received approximates the pool performance expectations.

(2)

Release of the nonaccretable difference as a result of sales to third parties increases noninterest income in the period of the sale.

(3)

Reclassification of nonaccretable difference to accretable yield for loans with increased cash flow estimates will result in increased interest income as a prospective yield adjustment over the remaining life of the loan or pool of
loans.

(4)

Provision for additional losses recorded as a charge to income, when it is estimated that the cash flows expected to be collected for a PCI loan or pool of loans have decreased subsequent to the acquisition.

For further detail on PCI loans, see Note 1 (Summary of Significant Accounting Policies
 Loans) and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this
Report.

60

PICK-A-PAY PORTFOLIO The Pick-a-Pay portfolio was one of the consumer residential first
mortgage portfolios we acquired from Wachovia. We considered a majority of the Pick-a-Pay loans to
be PCI loans.

The Pick-a-Pay portfolio had an outstanding balance of $84.2 billion and a carrying value of
$74.8 billion at December 31, 2010. It is a liquidating portfolio, as Wachovia ceased originating
new Pick-a-Pay loans in 2008.

Real estate 1-4 family junior lien mortgages and lines of credit associated with Pick-a-Pay
loans are reported in the Home Equity core portfolio. The Pick-a-Pay portfolio includes loans

that
offer payment options (Pick-a-Pay option payment loans), loans that were originated without the
option payment feature, loans that no longer offer the option feature as a result of our
modification efforts since the acquisition, and loans where the customer voluntarily converted to a
fixed-rate product. The Pick-a-Pay portfolio is included in the consumer real estate 1-4 family
first mortgage class of loans in Note 6 (Loans and Allowance for Credit Losses) to Financial
Statements in this Report. Table 23 provides balances over time related to the types of loans
included in the portfolio.

Table 23: Pick-a-Pay Portfolio - Balances Over Time

December 31

,

2010

2009

2008

Unpaid

Unpaid

Unpaid

principal

principal

principal

(in millions)

balance

% of total

balance

% of total

balance

% of total

Option payment loans (1)

$

49,958

59

%

$

67,170

69

%

$

99,937

86

%

Non-option payment adjustable-rate
and fixed-rate loans (1)

11,070

13

13,926

14

15,763

14

Full-term loan modifications (1)

23,132

28

16,378

17





Total unpaid principal balance (1)

$

84,160

100

%

$

97,474

100

%

$

115,700

100

%

Total carrying value

$

74,815

$

85,238

$

95,315

(1)

Unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress
exist that indicate there will be a loss of contractually due amounts upon final resolution of the loan.

PCI loans in the Pick-a-Pay portfolio had an outstanding balance of $41.9 billion and a
carrying value of $32.4 billion at December 31, 2010. The carrying value of the PCI loans is net of
remaining purchase accounting write-downs, which reflected their fair value at acquisition. Upon
acquisition, we recorded a $22.4 billion write-down in purchase accounting on Pick-a-Pay loans that
were impaired.

Due to the sustained positive performance observed on the Pick-a-Pay portfolio compared to the
original acquisition estimates, we have reclassified $2.4 billion from the nonaccretable difference
to the accretable yield since the Wachovia merger. This improvement in the lifetime credit outlook
for this portfolio is primarily attributable to the significant modification efforts as well as the
portfolios delinquency stabilization. This improvement in the credit outlook is expected to be
realized over the remaining life of the portfolio, which is estimated to have a weighted-average
life of approximately nine years. The accretable yield percentage at the end of 2010 was 4.54%
compared with 5.34% at the end of 2009. Fluctuations in the accretable yield are driven by changes
in interest rate indices for variable rate PCI loans, prepayment assumptions, and expected
principal and interest payments over the estimated life of the portfolio. Changes in the projected
timing of cash flow events, including loan liquidations, modifications and short sales, can also
affect the accretable yield percentage and the estimated weighted-average life of the portfolio.

Pick-a-Pay option payment loans may be adjustable or fixed rate. They are home mortgages on
which the customer has the

option each month to select from among four payment options: (1) a minimum payment as described
below, (2) an interest-only payment, (3) a fully amortizing 15-year payment, or (4) a fully
amortizing 30-year payment.

The minimum monthly payment for substantially all of our Pick-a-Pay loans is reset annually.
The new minimum monthly payment amount usually cannot increase by more than 7.5% of the
then-existing principal and interest payment amount. The minimum payment may not be sufficient to
pay the monthly interest due and in those situations a loan on which the customer has made a
minimum payment is subject to negative amortization, where unpaid interest is added to the
principal balance of the loan. The amount of interest that has been added to a loan balance is
referred to as deferred interest. Total deferred interest of $2.7 billion at December 31, 2010,
was down from $3.7 billion at December 31, 2009, due to loan modification efforts as well as
falling interest rates resulting in the minimum payment option covering the interest and some
principal on many loans. At December 31, 2010, approximately 75% of customers choosing the minimum
payment option did not defer interest.

Deferral of interest on a Pick-a-Pay loan may continue as long as the loan balance remains
below a pre-defined principal cap, which is based on the percentage that the current loan balance
represents to the original loan balance. Loans with an original loan-to-value (LTV) ratio equal to
or below 85% have a cap of 125% of the original loan balance, and these loans represent
substantially all the Pick-a-Pay portfolio. Loans with an original LTV ratio above 85% have a cap
of 110% of the

61

Risk Management  Credit Risk Management (continued)

original loan balance. Most of the Pick-a-Pay loans on which there is a deferred interest balance
re-amortize (the monthly payment amount is reset or recast) on the earlier of the date when the
loan balance reaches its principal cap, or the 10-year anniversary of the loan. For a small
population of Pick-a-Pay loans, the recast occurs at the five-year anniversary. After a recast, the
customers new payment terms are reset to the amount necessary to repay the balance over the
remainder of the original loan term.

Due to the terms of the Pick-a-Pay portfolio, there is little recast risk over the next three
years. Based on assumptions of a flat rate environment, if all eligible customers elect the minimum
payment option 100% of the time and no balances prepay, we would expect the following balances of
loans to recast based on reaching the principal cap: $3 million in 2011, $4 million in 2012 and $32
million in 2013. In 2010, the amount of loans recast based on reaching the principal cap was $1
million. In addition, we would expect the following balances of loans to start fully

amortizing due
to reaching their recast anniversary date and also having a payment change at the recast date
greater than the annual 7.5% reset: $34 million in 2011, $69 million in 2012 and $275 million in
2013. In 2010, the amount of loans reaching their recast anniversary date and also having a payment
change over the annual 7.5% reset was $39 million.

Table 24 reflects the geographic distribution of the Pick-a-Pay portfolio broken out between
PCI loans and all other loans. In stressed housing markets with declining home prices and
increasing delinquencies, the LTV ratio is a useful metric in predicting future real estate 1-4
family first mortgage loan performance, including potential charge-offs. Because PCI loans were
initially recorded at fair value, including write-downs for expected credit losses, the ratio of
the carrying value to the current collateral value will be lower compared with the LTV based on the
unpaid principal balance. For informational purposes, we have included both ratios in the following
table.

Table 24: Pick-a-Pay Portfolio (1)

December 31, 2010

PCI loans

All other loans

Ratio of

carrying

Unpaid

Current

value to

Unpaid

Current

principal

LTV

Carrying

current

principal

LTV

Carrying

(in millions)

balance (2)

ratio (3)

value (4)

value

balance (2)

ratio (3)

value (4)

California

$

28,451

117

%

$

21,623

88

%

$

20,782

81

%

$

20,866

Florida

3,925

122

2,960

88

4,317

100

4,335

New Jersey

1,432

91

1,242

78

2,568

77

2,578

Texas

371

78

337

72

1,725

64

1,732

Washington

525

96

488

89

1,288

80

1,293

Other states

7,189

106

5,726

83

11,587

84

11,635

Total Pick-a-Pay loans

$

41,893

$

32,376

$

42,267

$

42,439

(1)

The individual states shown in this table represent the top five states based on the total net carrying value of the Pick-a-Pay loans at the beginning of 2010.

(2)

Unpaid principal balance includes write-downs taken on loans where severe delinquency (normally 180 days) or other indications of severe borrower financial stress exist that indicate there will be a loss of contractually due
amounts upon final resolution of the loan.

(3)

The current LTV ratio is calculated as the unpaid principal balance divided by the collateral value. Collateral values are generally determined using automated valuation models (AVM) and are updated quarterly. AVMs
are computer-based tools used to estimate market values of homes based on processing large volumes of market data including market comparables and price trends for local market areas.

(4)

Carrying value, which does not reflect the allowance for loan losses, includes remaining purchase accounting adjustments, which, for PCI loans may include the nonaccretable difference and the accretable yield and, for all other
loans, an adjustment to mark the loans to a market yield at date of merger less any subsequent charge-offs.

To maximize return and allow flexibility for customers to avoid foreclosure, we have in
place several loss mitigation strategies for our Pick-a-Pay loan portfolio. We contact customers
who are experiencing difficulty and may in certain cases modify the terms of a loan based on a
customers documented income and other circumstances.

We also have taken steps to work with customers to refinance or restructure their Pick-a-Pay
loans into other loan products. For customers at risk, we offer combinations of term extensions of
up to 40 years (from 30 years), interest rate reductions, forbearance of principal, and, in
geographies with substantial property value declines, we may offer permanent principal reductions.

In 2009, we rolled out the U.S. Treasury Departments Home Affordability Modification Program
(HAMP) to the customers in

this portfolio. As of December 31, 2010, more than 11,000 HAMP applications were being reviewed by
our loan servicing department and more than 7,000 loans have been approved for the HAMP trial
modification. We believe a key factor to successful loss mitigation is tailoring the revised loan
payment to the customers sustainable income. We continually reassess our loss mitigation
strategies and may adopt additional or different strategies in the future.

In 2010, we completed more than 27,700 proprietary and HAMP loan modifications and have
completed more than 80,400 modifications since the Wachovia acquisition, resulting in $3.7 billion
of principal forgiveness to our customers. The majority of the loan modifications were concentrated
in our PCI Pick-a-Pay loan portfolio. Approximately 49,000 modification offers were proactively
sent to customers in 2010. As part of the modification process, the loans are re-underwritten, income is documented and the negative
amortization feature is eliminated.

62

Most of the modifications result in material payment reduction
to the customer. Because of the write-down of the PCI loans in purchase accounting, our post-merger
modifications to PCI Pick-

a-Pay loans have not resulted in any modification-related provision for
credit losses. To the extent we modify loans not in the PCI Pick-a-Pay portfolio, we may establish
an allowance for consumer loans modified in a TDR.

HOME EQUITY PORTFOLIOS The deterioration in specific segments of the legacy Wells Fargo
Home Equity portfolios, which began in 2007, required a targeted approach to managing these assets.
In fourth quarter 2007, a liquidating portfolio was identified, consisting of home equity loans
generated through the wholesale channel not behind a Wells Fargo first mortgage, and home equity
loans acquired through correspondents. The liquidating portfolio was $6.9 billion at December 31,
2010, compared with $8.4 billion at December 31, 2009. The loans in this liquidating portfolio
represent less than 1% of our total loans outstanding at December 31, 2010, and contain some of the
highest risk in our $117.5 billion Home Equity portfolio, with a loss rate of 10.90% compared with
3.62% for the core portfolio.

The loans in the liquidating portfolio are largely concentrated in geographic markets that
have experienced the most abrupt and steepest declines in housing prices. The core portfolio was
$110.6 billion at December 31, 2010, of which 98% was originated through the retail channel and
approximately 19% of the outstanding balance was in a first lien position. Table 25 includes the
credit attributes of the Home Equity portfolios. California loans represent the largest state
concentration in each of these portfolios and have experienced among the highest early-term
delinquency and loss rates.

Includes $1.7 billion and $1.8 billion at December 31, 2010 and 2009, respectively, associated with the Pick-a-Pay portfolio.

CREDIT CARDS Our credit card portfolio totaled $22.3 billion at December 31,
2010, which represented 3% of our total outstanding loans and was smaller than the credit card
portfolios of each of our large bank peers. Delinquencies of 30 days or more were 4.4% of credit
card outstandings at December 31, 2010, down from 5.5% a year ago. Net charge-offs were 9.7% for
2010, down from 10.8% in 2009, reflecting previous risk mitigation efforts and overall economic
improvements.

63

Risk Management  Credit Risk Management (continued)

NONACCRUAL LOANS AND OTHER NONPERFORMING ASSETS

Table 26 shows the five-year trend for
nonaccrual loans and other NPAs. We generally place loans on nonaccrual status when:



the full and timely collection of interest or principal becomes uncertain;



they are 90 days (120 days with respect to real estate 1-4 family first and junior lien
mortgages) past due for interest or principal, unless both well-secured and in the process of
collection; or



part of the principal balance has been charged off and no restructuring has occurred.

Wachovia nonaccrual loans were virtually eliminated at December 31, 2008 (acquisition date),
due to the purchase accounting adjustments. As a result, the rate of growth for nonaccrual loans
since acquisition has been higher than it would have been without the PCI loan accounting. The
impact of purchase accounting on our credit data will diminish over time. Table 27 summarizes NPAs
for each of the four quarters of 2010 and shows a decline in the total balance in fourth quarter
2010 for the first quarter since the acquisition of Wachovia.

Table 26: Nonaccrual Loans and Other Nonperforming Assets

December 31

,

(in millions)

2010

2009

2008

2007

2006

Nonaccrual loans:

Commercial:

Commercial and industrial

$

3,213

4,397

1,253

432

331

Real estate mortgage

5,227

3,696

594

128

105

Real estate construction

2,676

3,313

989

293

78

Lease financing

108

171

92

45

29

Foreign

127

146

57

45

43

Total commercial (1)

11,351

11,723

2,985

943

586

Consumer:

Real estate 1-4 family first mortgage (2)

12,289

10,100

2,648

1,272

688

Real estate 1-4 family junior lien mortgage

2,302

2,263

894

280

212

Other revolving credit and installment

300

332

273

184

180

Total consumer

14,891

12,695

3,815

1,736

1,080

Total nonaccrual loans (3)(4)

26,242

24,418

6,800

2,679

1,666

As a percentage of total loans

3.47

%

3.12

0.79

0.70

0.52

Foreclosed assets:

GNMA (5)

$

1,479

960

667

535

322

Other

4,530

2,199

1,526

649

423

Real estate and other nonaccrual investments (6)

120

62

16

5

5

Total nonaccrual loans and other nonperforming assets

$

32,371

27,639

9,009

3,868

2,416

As a percentage of total loans

4.27

%

3.53

1.04

1.01

0.76

(1)

Includes LHFS of $3 million and $27 million at December 31, 2010 and 2009, respectively.

Excludes loans acquired from Wachovia that are accounted for as PCI loans because they continue to earn interest income from accretable yield, independent of performance in accordance with their contractual terms.

(4)

See Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report for further information on impaired loans.

(5)

Consistent with regulatory reporting requirements, foreclosed real estate securing GNMA loans is classified as nonperforming. Both principal and interest for GNMA loans secured by the foreclosed real estate are collectible because the GNMA
loans are
insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

(6)

Includes real estate investments (loans with non-traditional interest terms accounted for as investments) that would be classified as nonaccrual if these assets were recorded as loans, and nonaccrual debt securities.

64

Table 27: Nonaccrual Loans and Other Nonperforming Assets During 2010

December 31, 2010

September 30, 2010

June 30, 2010

March 31, 2010

% of

% of

% of

% of

total

total

total

total

($ in millions)

Balances

loans

Balances

loans

Balances

loans

Balances

loans

Commercial:

Commercial and industrial

$

3,213

2.12

%

$

4,103

2.79

%

$

3,843

2.63

%

$

4,273

2.84

%

Real estate mortgage

5,227

5.26

5,079

5.14

4,689

4.71

4,345

4.44

Real estate construction

2,676

10.56

3,198

11.46

3,429

11.10

3,327

9.64

Lease financing

108

0.82

138

1.06

163

1.21

185

1.33

Foreign

127

0.39

126

0.42

115

0.38

135

0.48

Total commercial

11,351

3.52

12,644

3.99

12,239

3.82

12,265

3.77

Consumer:

Real estate 1-4 family
first mortgage

12,289

5.34

12,969

5.69

12,865

5.50

12,347

5.13

Real estate 1-4 family
junior lien mortgage

2,302

2.39

2,380

2.40

2,391

2.36

2,355

2.27

Other revolving credit
and installment

300

0.35

312

0.35

316

0.36

334

0.37

Total consumer

14,891

3.42

15,661

3.58

15,572

3.49

15,036

3.30

Total nonaccrual loans

26,242

3.47

28,305

3.76

27,811

3.63

27,301

3.49

Foreclosed assets:

GNMA

1,479

1,492

1,344

1,111

All other

4,530

4,635

3,650

2,970

Total foreclosed assets

6,009

6,127

4,994

4,081

Real estate and other
nonaccrual investments

120

141

131

118

Total nonaccrual
loans and other
nonperforming assets

$

32,371

4.27

%

$

34,573

4.59

%

$

32,936

4.30

%

$

31,500

4.03

%

Change from prior quarter

$

(2,202

)

1,637

1,436

3,861

65

Risk Management  Credit Risk Management (continued)

Total NPAs were $32.4 billion (4.27% of total loans) at December 31, 2010, and included
$26.2 billion of nonaccrual loans and $6.0 billion of foreclosed assets. The growth rate in
nonaccrual loans slowed in 2010, peaking in third quarter. Growth occurred in the real estate
portfolios (commercial and

residential) which consist of secured loans. Nonaccruals in all other
loan portfolios were essentially flat or down year over year. New inflows to nonaccrual loans
continued to decline. Table 28 provides an analysis of the changes in nonaccrual loans.

Table 28: Analysis of Changes in Nonaccrual Loans

Quarter ended

Dec. 31

,

Sept. 30

,

June 30

,

Mar. 31

,

Dec. 31

,

(in millions)

2010

2010

2010

2010

2009

Commercial nonaccrual loans

Balance, beginning of quarter

$

12,644

12,239

12,265

11,723

10,408

Inflows

2,329

2,807

2,560

2,763

3,856

Outflows

(3,622

)

(2,402

)

(2,586

)

(2,221

)

(2,541

)

Balance, end of quarter

11,351

12,644

12,239

12,265

11,723

Consumer nonaccrual loans

Balance, beginning of quarter

15,661

15,572

15,036

12,695

10,461

Inflows

4,357

4,866

4,733

6,169

5,626

Outflows

(5,127

)

(4,777

)

(4,197

)

(3,828

)

(3,392

)

Balance, end of quarter

14,891

15,661

15,572

15,036

12,695

Total nonaccrual loans

26,242

28,305

27,811

27,301

24,418

Typically, changes to nonaccrual loans period-over-period represent inflows for loans
that reach a specified past due status, offset by reductions for loans that are charged off, sold,
transferred to foreclosed properties, or are no longer classified as nonaccrual because they return
to accrual status. We have increased our loan modification activity to assist homeowners and other
borrowers in the current difficult economic cycle. Loans are re-underwritten at the time of the modification in accordance with underwriting
guidelines established for governmental and proprietary loan modification programs. For an accruing
loan that has been modified, if the borrower has demonstrated performance under the previous terms
and shows the capacity to continue to perform under the restructured terms, the loan will remain in
accruing status. Otherwise, the loan will be placed in a nonaccrual status generally until the
borrower has made six consecutive months of payments, or equivalent, inclusive of consecutive
payments made prior to modification.

Loss expectations for nonaccrual loans are driven by delinquency rates, default probabilities
and severities. While nonaccrual loans are not free of loss content, we believe the estimated loss
exposure remaining in these balances is significantly mitigated by four factors. First, 99% of
consumer nonaccrual loans and 95% of commercial nonaccrual loans are secured. Second, losses have
already been recognized on 52% of the remaining balance of consumer nonaccruals and commercial
nonaccruals have been written down by $2.6 billion. Residential nonaccrual loans are written down
to net realizable value at 180 days past due, except for loans that go into trial modification
prior to becoming 180 days past due, and which are not written down in the trial period (three
months) as long as trial payments are being made on time. Third, as of December 31, 2010, 57% of
commercial nonaccrual loans were current on interest. Fourth, the inherent risk of loss

in all
nonaccruals is adequately covered by the allowance for loan losses.

Commercial nonaccrual loans, net of write-downs, amounted to $11.4 billion at December 31,
2010, compared with $11.7 billion a year ago. Consumer nonaccrual loans amounted to $14.9 billion
at December 31, 2010, compared with $12.7 billion a year ago. The $2.2 billion increase in
nonaccrual consumer loans from a year ago was due to an increase in 1-4 family first mortgage
loans. Residential mortgage nonaccrual loans increased largely due to slower disposition and assets
brought on the balance sheet upon consolidation of VIEs. Federal government programs, such as HAMP,
and Wells Fargo proprietary programs, such as the Companys Pick-a-Pay Mortgage Assistance program,
require customers to provide updated documentation, and to demonstrate sustained performance by
completing trial payment periods, before the loan can be removed from nonaccrual status. In
addition, for loans in foreclosure, many states, including California and Florida, have enacted
legislation that significantly increases the time frames to complete the foreclosure process,
meaning that loans will remain in nonaccrual status for longer periods. At the conclusion of the
foreclosure process, we continue to sell real estate owned in a timely fashion.

When a consumer real estate loan is 120 days past due, we move it to nonaccrual status. When
the loan reaches 180 days past due it is our policy to write these loans down to net realizable
value, except for modifications in their trial period. Thereafter, we revalue each loan regularly
and recognize additional charges if needed. Of the $14.9 billion of consumer nonaccrual loans at
December 31, 2010, 98% are secured by real estate and 33% have a combined LTV (CLTV) ratio of 80%
or below.

Table 29 provides a summary of foreclosed assets.

66

Table 29: Foreclosed Assets

Dec. 31

,

Sept. 30

,

June 30

,

Mar. 31

,

Dec. 31

,

(in millions)

2010

2010

2010

2010

2009

GNMA

$

1,479

1,492

1,344

1,111

960

PCI loans:

Commercial

967

1,043

940

697

405

Consumer

1,068

1,109

722

490

336

Total PCI loans

2,035

2,152

1,662

1,187

741

All other loans:

Commercial

1,412

1,343

1,087

820

655

Consumer

1,083

1,140

901

963

803

Total all other loans

2,495

2,483

1,988

1,783

1,458

Total foreclosed assets

$

6,009

6,127

4,994

4,081

3,159

NPAs at December 31, 2010, included $1.5 billion of foreclosed real estate that is FHA
insured or VA guaranteed and expected to have little to no loss content, and $4.5 billion of
foreclosed assets, which have been written down to the value of the underlying collateral.
Foreclosed assets increased $2.9 billion, or 90%, in 2010 from the prior year. Of this increase,
$1.3 billion were foreclosed loans from the PCI portfolio that are now recorded as foreclosed
assets. At December 31, 2010, substantially all of our foreclosed assets of $6.0 billion have been
in the portfolio one year or less.

Given our real estate-secured loan concentrations and current economic conditions, we
anticipate continuing to hold a high level of NPAs on our balance sheet. The loss content in the
nonaccrual loans has been recognized through charge-offs or provided for in the allowance for
credit losses at December 31, 2010. The performance of any one loan can be affected by external
factors, such as economic or market conditions, or factors affecting a particular borrower. We
increased staffing in our workout and collection organizations to ensure troubled borrowers receive
the attention and help they need. See the Risk Management  Allowance for Credit Losses section
in this Report for additional information.

We process foreclosures on a regular basis for the loans we service for others as well as
those we hold in our loan portfolio. However, we utilize foreclosure only as a last resort for
dealing with borrowers who are experiencing financial hardships. We employ extensive contact and
restructuring procedures to attempt to find other solutions for our borrowers, and on average we
attempt to contact borrowers over 75 times by phone and nearly 50 times by letter during the period
from first delinquency to foreclosure sale.

We employ the same foreclosure procedures for loans we service for others as we use for loans
that we hold in our portfolio. We transmit customer and loan data directly from our system of
record to outside foreclosure counsel to help ensure the quality of the customer and loan data
included in our foreclosure affidavits. We continuously test this process to confirm the proper
transmission of the data. Completed foreclosure affidavits that are submitted to the courts are
reviewed, signed, and notarized as one of the last steps in a multi-step process intended to comply
with applicable law and help ensure the quality of customer and loan data. As previously disclosed,
in the course of completing a thorough review of our foreclosure affidavit preparation and
execution procedures, we did identify practices where final steps relating to the execution of
foreclosure affidavits, as well as some aspects of the notarization process were not adhered to.
However, we do not believe that any of these practices led to unwarranted foreclosures. In
addition, we have enhanced those procedures to help ensure that foreclosure affidavits are properly
prepared, reviewed, and signed.

67

Risk Management  Credit Risk Management (continued)

TROUBLED DEBT RESTRUCTURINGS (TDRs)

Table 30: Troubled Debt Restructurings (TDRs)

Dec. 31

,

Sept. 30

,

June 30

,

Mar. 31

,

Dec. 31

,

(in millions)

2010

2010

2010

2010

2009

Consumer TDRs:

Real estate 1-4 family first mortgage

$

11,603

10,951

9,525

7,972

6,685

Real estate 1-4 family junior lien mortgage

1,626

1,566

1,469

1,563

1,566

Other revolving credit and installment

778

674

502

310

17

Total consumer TDRs

14,007

13,191

11,496

9,845

8,268

Commercial TDRs

1,751

1,350

656

386

265

Total TDRs

$

15,758

14,541

12,152

10,231

8,533

TDRs on nonaccrual status

$

5,185

5,177

3,877

2,738

2,289

TDRs on accrual status

10,573

9,364

8,275

7,493

6,244

Total TDRs

$

15,758

14,541

12,152

10,231

8,533

Table 30 provides information regarding the recorded investment of loans modified in
TDRs. We establish an allowance for loan losses when a loan is modified in a TDR, which was $3.9
billion and $1.8 billion at December 31, 2010 and 2009, respectively. Total charge-offs related to
loans modified in a TDR were $812 million in 2010 and $479 million in 2009.

Our nonaccrual policies are generally the same for all loan types when a restructuring is
involved. We underwrite loans at the time of restructuring to determine whether there is sufficient
evidence of sustained repayment capacity based on the borrowers documented income, debt to income
ratios, and other factors. Any loans lacking sufficient evidence of sustained repayment capacity at
the time of modification are charged down to the fair value of the collateral, if applicable. If
the borrower has demonstrated performance under the previous terms and the underwriting process
shows the capacity to continue to perform under the restructured terms, the loan will remain in
accruing status. Otherwise, the loan will be placed in nonaccrual status generally until the
borrower demonstrates a sustained period of performance, generally six consecutive months of
payments, or equivalent, inclusive of consecutive payments made prior to modification. Loans will
also be placed on nonaccrual, and a corresponding charge-off is recorded to the loan balance, if we
believe that principal and interest contractually due under the modified agreement will not be
collectible.

We do not forgive principal for a majority of our TDRs, but in those situations where
principal is forgiven, the entire amount of such principal forgiveness is immediately charged off.
When a TDR performs in accordance with its modified terms, the loan either continues to accrue
interest (for performing loans), or will return to accrual status after the borrower demonstrates a
sustained period of performance.

If interest due on all nonaccrual loans (including loans that were, but are no longer on
nonaccrual at year end) had been accrued under the original terms, approximately $1.3 billion of
interest would have been recorded as income in 2010, compared with $362 million recorded as
interest income.

68

LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING Loans included in this category are 90
days or more past due as to interest or principal and still accruing, because they are (1)
well-secured and in the process of collection or (2) real estate 1-4 family mortgage loans or
consumer loans exempt under regulatory rules from being classified as nonaccrual until later
delinquency, usually 120 days past due. PCI loans of $11.6 billion at December 31, 2010, and $16.1
billion at December 31, 2009, are excluded from this disclosure even though they are 90 days or
more contractually past due. These PCI loans are considered to be accruing due to the existence of
the accretable yield and not based on consideration given to contractual interest payments.

Non-PCI loans 90 days or more past due and still accruing were $18.5 billion at December 31,
2010, and $22.2 billion at

December 31, 2009. Those balances include $14.7 billion and $15.3
billion, respectively, in loans whose repayments are insured by the FHA or guaranteed by the VA.

Excluding these insured/guaranteed loans, loans 90 days or more past due and still accruing at
December 31, 2010, were down $3.1 billion, or 45%, from December 31, 2009. The decline was due to
loss mitigation activities including modifications and increased collection capacity/process
improvements, charge-offs, lower early stage delinquency levels and credit stabilization.

Table 31 reflects loans 90 days or more past due and still accruing excluding the
insured/guaranteed loans.

Table 31: Loans 90 Days or More Past Due and Still Accruing (Excluding Insured/Guaranteed Loans)

December 31

,

(in millions)

2010

2009

2008

2007

2006

Commercial:

Commercial and industrial

$

308

590

218

32

15

Real estate mortgage

104

1,014

70

10

3

Real estate construction

193

909

250

24

3

Foreign

22

73

34

52

44

Total commercial

627

2,586

572

118

65

Consumer:

Real estate 1-4 family first mortgage (1)

941

1,623

883

286

154

Real estate 1-4 family junior lien mortgage (1)

366

515

457

201

63

Credit card

516

795

687

402

262

Other revolving credit and installment

1,305

1,333

1,047

552

616

Total consumer

3,128

4,266

3,074

1,441

1,095

Total

$

3,755

6,852

3,646

1,559

1,160

(1)

Includes MHFS 90 days or more past due and still accruing.

69

Risk Management  Credit Risk Management (continued)

NET CHARGE-OFFS

Table 32: Net Charge-offs

Year ended

Quarter ended

December 31

,

December 31

,

September 30

,

June 30

,

March 31

,

Net loan

% of

Net loan

% of

Net loan

% of

Net loan

% of

Net loan

% of

charge-

avg.

charge-

avg.

charge-

avg.

charge-

avg.

charge-

avg.

($ in millions)

offs

loans

offs

loans (1)

offs

loans (1)

offs

loans (1)

offs

loans (1)

2010

Commercial:

Commercial and
industrial

$

2,348

1.57

%

$

500

1.34

%

$

509

1.38

%

$

689

1.87

%

$

650

1.68

%

Real estate mortgage

1,083

1.10

234

0.94

218

0.87

360

1.47

271

1.12

Real estate construction

1,079

3.45

171

2.51

276

3.72

238

2.90

394

4.45

Lease financing

100

0.74

21

0.61

23

0.71

27

0.78

29

0.85

Foreign

145

0.49

28

0.36

39

0.52

42

0.57

36

0.52

Total commercial

4,755

1.47

954

1.19

1,065

1.33

1,356

1.69

1,380

1.68

Consumer:

Real estate 1-4 family
first mortgage

4,378

1.86

1,024

1.77

1,034

1.78

1,009

1.70

1,311

2.17

Real estate 1-4 family
junior lien mortgage

4,723

4.65

1,005

4.08

1,085

4.30

1,184

4.62

1,449

5.56

Credit card

2,178

9.74

452

8.21

504

9.06

579

10.45

643

11.17

Other revolving credit
and installment

1,719

1.94

404

1.84

407

1.83

361

1.64

547

2.45

Total consumer

12,998

2.90

2,885

2.63

3,030

2.72

3,133

2.79

3,950

3.45

Total

$

17,753

2.30

%

$

3,839

2.02

%

$

4,095

2.14

%

$

4,489

2.33

%

$

5,330

2.71

%

2009

Commercial:

Commercial and industrial

$

3,111

1.72

%

$

927

2.24

%

$

924

2.09

%

$

704

1.51

%

$

556

1.15

%

Real estate mortgage

637

0.66

315

1.29

184

0.77

119

0.49

19

0.08

Real estate construction

1,047

2.56

409

4.23

274

2.67

259

2.48

105

0.99

Lease financing

209

1.42

49

1.37

82

2.26

61

1.68

17

0.43

Foreign

197

0.64

46

0.62

60

0.79

46

0.61

45

0.56

Total commercial

5,201

1.43

1,746

2.02

1,524

1.70

1,189

1.29

742

0.78

Consumer:

Real estate 1-4 family
first mortgage

3,133

1.31

1,018

1.74

966

1.63

758

1.26

391

0.65

Real estate 1-4 family
junior lien mortgage

4,638

4.34

1,329

5.09

1,291

4.85

1,171

4.33

847

3.12

Credit card

2,528

10.82

634

10.61

648

10.96

664

11.59

582

10.13

Other revolving credit
and installment

2,668

2.94

686

3.06

682

3.00

604

2.66

696

3.05

Total consumer

12,967

2.82

3,667

3.24

3,587

3.13

3,197

2.77

2,516

2.16

Total

$

18,168

2.21

%

$

5,413

2.71

%

$

5,111

2.50

%

$

4,386

2.11

%

$

3,258

1.54

%

(1)

Quarterly net charge-offs as a percentage of average loans are annualized.

70

Table 32 presents net charge-offs for the four quarters and full year of 2010 and 2009.
Net charge-offs in 2010 were $17.8 billion (2.30% of average total loans outstanding) compared with
$18.2 billion (2.21%) in 2009. Total net charge-offs decreased in 2010 in part due to lower average
loan balances and as a result of modestly improving economic conditions, aggressive loss mitigation
activities aimed at working with our customers through their financial challenges, and a depletion
of the pool of the most challenged vintages/relationships in the portfolio. Total net charge-offs
decreased each quarter throughout the year from the peak loss level in fourth quarter of 2009.
While loss levels remained elevated, the broad-based improvement across the portfolio was an
encouraging trend.

Net charge-offs in the 1-4 family first mortgage portfolio totaled $4.4 billion in 2010. Our
relatively high quality 1-4 family first mortgage portfolio continued to reflect relatively low
loss rates, although until housing prices fully stabilize, these credit losses will continue to
remain elevated.

Net charge-offs in the real estate 1-4 family junior lien portfolio were $4.7 billion in 2010.
Loss levels increased throughout 2009 and peaked in the first quarter of 2010. Loss levels will
remain elevated, however, until conditions in the real estate markets improve. More information
about the Home Equity portfolio, which includes substantially all of our real estate 1-4 family
junior lien mortgage loans, is available in Table 25 in this Report and the related discussion.

Credit card charge-offs decreased $350 million to $2.2 billion in 2010. Delinquency and loss
levels improved in 2010 as the economy showed signs of stabilization.

Commercial and CRE net charge-offs were $4.8 billion in 2010 compared with $5.2 billion a year
ago. Wholesale credit results improved from 2009 as market liquidity and improving market
conditions helped stabilize performance results. Increased lending activity in fourth quarter 2010
in the majority of our commercial business lines further supported our belief of a turn in the
demand for credit.

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses, which consists of the
allowance for loan losses and the allowance for unfunded credit commitments, is managements
estimate of credit losses inherent in the loan portfolio and unfunded credit commitments at the
balance sheet date, excluding loans carried at fair value. The detail of the changes in the
allowance for credit losses by portfolio segment (including charge-offs and recoveries by loan
class) is in Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

We employ a disciplined process and methodology to establish our allowance for credit losses
each quarter. This process takes into consideration many factors, including historical and
forecasted loss trends, loan-level credit quality ratings and loan grade-specific loss factors. The
process involves subjective as well as complex judgments. In addition, we review a variety of
credit metrics and trends. However, these trends do not solely determine the adequacy of the
allowance as we use several analytical tools in determining its adequacy. For additional
information on our allowance for credit losses, see the Critical Accounting Policies  Allowance
for Credit Losses section and Note 6 (Loans and Allowance for Credit Losses) to Financial
Statements in this Report.

At December 31, 2010, the allowance for loan losses totaled $23.0 billion (3.04% of total
loans), compared with $24.5 billion (3.13%), at December 31, 2009. The allowance for credit losses
was $23.5 billion (3.10% of total loans) at December 31, 2010, and $25.0 billion (3.20%) at
December 31, 2009. The allowance for credit losses included $298 million and $333 million at
December 31, 2010 and 2009, respectively, related to PCI loans acquired from Wachovia. The
allowance for unfunded credit commitments was $441 million and $515 million at December 31, 2010
and 2009, respectively. In addition to the allowance for credit losses there was $13.4 billion and
$22.9 billion of nonaccretable difference at December 31, 2010 and 2009, respectively, to absorb
losses for PCI loans. For additional information on PCI loans, see the Risk Management  Credit
Risk Management  Purchased Credit-Impaired Loans section and Note 6 (Loans and Allowance for
Credit Losses) to Financial Statements in this Report.

The ratio of the allowance for credit losses to total nonaccrual loans was 89% and 103% at
December 31, 2010 and 2009, respectively. This ratio may fluctuate significantly from period to
period due to such factors as the mix of loan types in the portfolio, borrower credit strength and
the value and marketability of collateral. Over half of nonaccrual loans were home mortgages, auto
and other consumer loans at December 31, 2010.

The ratio of the allowance for loan losses to annual net charge-offs was 130% and 135% at
December 31, 2010 and 2009, respectively. The $1.5 billion decline in the allowance for loan losses
in 2010 reflected lower loan balances and lower levels of inherent credit loss in the portfolio
compared with previous year-end levels. When anticipated charge-offs are projected to decline from
current levels, this ratio will decrease. As more of the portfolio experiences charge-offs,
charge-off levels continue to increase and the remaining portfolio is anticipated to consist of
higher quality vintage loans subjected to tightened underwriting standards administered during the
downturn in the credit cycle. As charge-off levels peak, we anticipate coverage levels will
decrease until charge-off levels return to more normalized levels. This ratio may fluctuate
significantly from period to period due to many factors, including general economic conditions,
customer credit strength and the marketability of collateral.

71

Risk Management  Credit Risk Management (continued)

Total provision for credit losses was $15.8 billion in 2010, $21.7 billion in 2009 and $16.0
billion in 2008. The 2010 provision was $2.0 billion less than credit losses, compared with a
provision that was $3.5 billion in excess of credit losses in 2009. Absent significant
deterioration in the economy, we expect future reductions in the allowance for credit losses.

Primary drivers of the 2010 provision reduction were continued improvement in the consumer
portfolios and related loss estimates and improvement in managements view of economic conditions.
These drivers were partially offset by an increase in impaired loans and related allowance
primarily associated with increased consumer loan modification efforts and a $693 million
adjustment due to adoption of consolidation accounting guidance on January 1, 2010.

In 2009, the provision of $21.7 billion included a provision in excess of credit losses of
$3.5 billion, which was primarily driven by three factors: (1) deterioration in economic conditions
that increased the projected losses in our commercial portfolios, (2) additional allowance
associated with loan modification programs designed to keep qualifying borrowers in their homes,
and (3) the establishment of additional allowance for PCI loans.

In 2008, the provision of $16.0 billion included a provision in excess of credit losses of
$8.1 billion, which included $3.9 billion to conform loss emergence coverage periods to the most
conservative of legacy Wells Fargo and Wachovia within Federal Financial Institutions Examination
Council guidelines. The remainder of the allowance build was attributable to higher projected loss
rates across the majority of the consumer credit businesses, and some credit deterioration and
growth in the wholesale portfolios.

In determining the appropriate allowance attributable to our residential real estate
portfolios, the loss rates used in our analysis include the impact of our established loan
modification programs. When modifications occur or are probable to occur, our allowance considers
the impact of these modifications, taking into consideration the associated credit cost, including
re-defaults of modified loans and projected loss severity. The loss content associated with
existing and probable loan modifications has been considered in our allowance reserving
methodology.

Changes in the allowance reflect changes in statistically derived loss estimates, historical
loss experience, current trends in borrower risk and/or general economic activity on portfolio
performance, and managements estimate for imprecision and uncertainty.

We believe the allowance for credit losses of $23.5 billion was adequate to cover credit
losses inherent in the loan portfolio, including unfunded credit commitments, at December 31, 2010.
The allowance for credit losses is subject to change and considers existing factors at the time,
including economic or market conditions and ongoing internal and external examination processes.
Due to the sensitivity of the allowance for credit losses to changes in the economic environment,
it is possible that unanticipated economic deterioration would create incremental credit losses not
anticipated as of the balance sheet date. Our process for determining the allowance for credit
losses is discussed in the Critical Accounting Policies  Allowance for Credit Losses section
and Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

LIABILITY FOR MORTGAGE LOAN REPURCHASE LOSSES We sell residential mortgage loans to
various parties, including (1) Freddie Mac and Fannie Mae (GSEs) who include the mortgage loans in
GSE-guaranteed mortgage securitizations, (2) SPEs that issue private label MBS, and (3) other
financial institutions that purchase mortgage loans for investment or private label securitization.
In addition, we pool FHA-insured and VA-guaranteed mortgage loans that back securities guaranteed
by GNMA. We may be required to repurchase these mortgage loans, indemnify the securitization trust,
investor or insurer, or reimburse the securitization trust, investor or insurer for credit losses
incurred on loans (collectively repurchase) in the event of a breach of such contractual
representations or warranties that is not remedied within a period (usually 90 days or less) after
we receive notice of the breach.

We establish mortgage repurchase liabilities related to various representations and warranties
that reflect managements estimate of losses for loans for which we could have repurchase
obligation, whether or not we currently service those loans, based on a combination of factors.
Currently, repurchase demands primarily relate to 2006 through 2008 vintages and to GSE-guaranteed
MBS.

During 2010, we continued to experience elevated levels of repurchase activity measured by
number of loans, investor repurchase demands and our level of repurchases. We repurchased or
reimbursed investors for incurred losses on mortgage loans with balances of $2.6 billion.
Additionally, in 2010, we negotiated global settlements on pools of mortgage loans of $675 million,
which effectively eliminates the risk of repurchase on these loans from our outstanding servicing
portfolio. We incurred net losses on repurchased loans, investor reimbursements and loan pool
global settlements totaling $1.4 billion in 2010.

Adjustments made to our mortgage repurchase liability in recent periods have incorporated the
increase in repurchase demands, mortgage insurance rescissions, and higher than anticipated losses
on repurchased loans that we have experienced. Table 33 provides the number of unresolved
repurchase demands and mortgage insurance rescissions. We generally do not have unresolved
repurchase demands from the FHA and VA for loans in GNMA-guaranteed securities because those
demands are relatively few and we quickly resolve them.

Includes repurchase demands on 1,495 loans totaling $291 million and 1,536 loans totaling
$322 million at December 31, 2010, and December 31, 2009, respectively, received from investors on
mortgage servicing rights acquired from other originators. We have the right of recourse against
the seller for these repurchase demands and would incur a loss only for counterparty risk
associated with the seller.

(2)

As part of our representations and warranties in our loan sales contracts, we represent that
certain loans have mortgage insurance. To the extent the mortgage insurance is rescinded by the
mortgage insurer, the lack of insurance may result in a repurchase demand from an investor.

(3)

While original loan balance related to these demands is presented above, the establishment of
the repurchase reserve is based on a combination of factors, such as our appeals success rates,
reimbursement by correspondent and other third party originators, and projected loss severity,
which is driven by the difference between the current loan balance and the estimated collateral
value less costs to sell the property.

The level of repurchase demands outstanding at December 31, 2010, was down from a year
ago in both number of outstanding loans and in total dollar balances as we continued to work
through the demands. Customary with industry practice, we have the right of recourse against
correspondent lenders with respect to representations and warranties. Of the repurchase demands
presented in Table 33, approximately 20% relate to loans purchased from correspondent lenders. Due
primarily to the financial difficulties of some correspondent lenders, we typically recover on
average approximately 50% of losses from these lenders. Historical recovery rates as well as
projected lender performance are incorporated in the establishment of our mortgage repurchase
liability.

Our liability for repurchases, included in Accrued expenses and other liabilities in our
consolidated financial statements, was $1.3 billion and $1.0 billion at December 31, 2010 and 2009,
respectively. In 2010, $1.6 billion of additions to the liability were recorded, which reduced net
gains on mortgage loan origination/sales activities. Our additions to the repurchase liability in
2010 reflect updated assumptions about the losses we expect on repurchases and future demands,
particularly on the 2006-2008 vintages.

We believe we have a high quality residential mortgage loan servicing portfolio. Of the $1.8
trillion in the residential mortgage loan servicing portfolio at December 31, 2010, 92% was
current, less than 2% was subprime at origination, and approximately 1% was home equity
securitizations. Our combined delinquency and foreclosure rate on this portfolio was 8.02% at
December 31, 2010, compared with 8.96% at December 31, 2009. In this portfolio 7% are private
securitizations where we originated the loan and therefore have some repurchase risk; 58% of these
loans are from 2005 vintages or earlier (weighted average age of 63 months); 81% were prime at
origination; and approximately 70% are jumbo loans. The weighted-average LTV as of December 31,
2010, was 72%. In addition, the highest risk segment of these private securitizations are the
subprime loans originated in 2006 and 2007. These subprime loans have seller representations and
warranties and currently have LTVs close to or exceeding 100%, and represent 8% of the 7% private
securitization portion of the residential mortgage servicing portfolio. We had only $114 million of
repurchases related to private securitizations in 2010. Of the
servicing portfolio, 4% is
non-agency acquired servicing and 3% is private whole loan sales. We did not
underwrite and securitize the non-agency acquired servicing and
therefore we have no obligation on that portion of our servicing
portfolio to the investor for any repurchase
demands arising from origination practices.

Table 34 summarizes the changes in our mortgage repurchase reserve.

73

Risk Management  Credit Risk Management (continued)

Table 34: Changes in Mortgage Repurchase Liability

Quarter ended

Dec. 31

,

Sept. 30

,

June 30

,

Mar. 31

,

Year ended December 31

,

(in millions)

2010

2010

2010

2010

2010

2009

Balance, beginning of period

$

1,331

1,375

1,263

1,033

1,033

620

(1)

Provision for repurchase losses:

Loan sales

35

29

36

44

144

302

Change in
estimate - primarily due to
credit deterioration

429

341

346

358

1,474

625

Total additions

464

370

382

402

1,618

927

Losses

(506

)

(414

)

(270

)

(172

)

(1,362

)

(514)

Balance, end of period

$

1,289

1,331

1,375

1,263

1,289

1,033

(1)

Reflects purchase accounting refinements.

The mortgage repurchase liability of $1.3 billion at December 31, 2010, represents our
best estimate of the probable loss that we may incur for various representations and warranties in
the contractual provisions of our sales of mortgage loans. There may be a range of reasonably
possible losses in excess of the estimated liability that cannot be estimated with confidence.
Because the level of mortgage loan repurchase losses depends upon economic factors, investor demand
strategies and other external conditions that may change over the life of the underlying loans, the
level of the liability for mortgage loan repurchase losses is difficult to estimate and requires
considerable management judgment. We maintain regular contact with the GSEs and other significant
investors to monitor and address their repurchase demand practices and concerns. For additional
information on our repurchase liability, see the Critical Accounting Policies  Liability for
Mortgage Loan Repurchase Losses section and Note 9 (Mortgage Banking Activities) to Financial
Statements in this Report.

The repurchase liability is only applicable to loans we originated and sold with
representations and warranties. Most of these loans are included in our servicing portfolio. Our
repurchase liability estimate involves consideration of many factors that influence the key
assumptions of what our repurchase volume may be and what loss on average we may incur. Those key
assumptions and the sensitivity of the liability to immediate adverse changes in them at December
31, 2010, are presented in Table 35.

Table 35: Mortgage Repurchase Liability  Sensitivity/Assumptions

Mortgage

repurchase

(in millions)

liability

Balance at December 31, 2010

$

1,289

Loss on repurchases (1)

36.0

%

Increase in liability from:

10% higher losses

$

145

25% higher losses

362

Repurchase rate assumption

0.3

%

Increase in liability from:

10% higher repurchase rates

$

108

25% higher repurchase rates

269

(1)

Represents total estimated average loss rate on repurchased loans, net of recovery from
third party originators, based on historical experience and current economic conditions. The
average loss rate includes the impact of repurchased loans for which no loss is expected to be
realized.

To the extent that economic conditions and the housing market do not recover or future
investor repurchase demands and appeals success rates differ from past experience, we could
continue to have increased demands and increased loss severity on repurchases, causing future
additions to the repurchase liability. However, some of the underwriting standards that were
permitted by the GSEs for conforming loans in the 2006 through 2008 vintages, which significantly
contributed to recent levels of repurchase demands, were tightened starting in mid to late 2008.
Accordingly, we do not expect a similar rate of repurchase requests from the 2009 and prospective
vintages, absent deterioration in economic conditions or changes in investor behavior.

74

RISKS RELATING TO SERVICING ACTIVITIES In addition to servicing loans in our portfolio,
we act as servicer and/or master servicer of residential mortgage loans included in GSE-guaranteed
mortgage securitizations, GNMA-guaranteed mortgage securitizations and private label mortgage
securitizations, as well as for unsecuritized loans owned by institutional investors. The loans we
service were originated by us or by other mortgage loan originators.
As servicer, our primary duties are typically to (1) collect payment due from
borrowers, (2) advance certain delinquent payments of principal and interest, (3) maintain and
administer any hazard, title or primary mortgage insurance policies relating to the mortgage loans,
(4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow
payments, and (5) foreclose on defaulted mortgage loans or, to the extent consistent with the
documents governing a securitization, consider alternatives to foreclosure, such as loan
modifications or short sales. As master servicer, our primary duties are typically to (1)
supervise, monitor and oversee the servicing of the mortgage loans by the servicer, (2) consult
with each servicer and use reasonable efforts to cause the servicer to observe its servicing
obligations, (3) prepare monthly distribution statements to security holders and, if required by
the securitization documents, certain periodic reports required to be filed with the Securities and
Exchange Commission (SEC), (4) if required by the securitization documents, calculate distributions
and loss allocations on the mortgage-backed securities, (5) prepare tax and information returns of
the securitization trust, and (6) advance amounts required by non-affiliated servicers who fail to
perform their advancing obligations.

Each agreement under which we act as servicer or master servicer generally specifies a
standard of responsibility for actions we take in such capacity and provides protection against
expenses and liabilities we incur when acting in compliance with the specified standard. For
example, most private label securitization agreements under which we act as servicer or master
servicer typically provide that the servicer and the master servicer are entitled to
indemnification by the securitization trust for taking action or refraining from taking action in
good faith or for errors in judgment. However, we are not indemnified, but rather are required to
indemnify the securitization trustee, against any failure by us, as servicer or master servicer, to
perform our servicing obligations or any of our acts or omissions that involve willful misfeasance,
bad faith or gross negligence in the performance of, or reckless disregard of, our duties. In
addition, if we commit a material breach of our obligations as servicer or master servicer, we may
be subject to termination if the breach is not cured within a specified period following notice,
which can generally be given by the securitization trustee or a specified percentage of security
holders. Whole loan sale contracts under which we act as servicer generally include similar
provisions with respect to our actions as servicer. The standards governing servicing in
GSE-guaranteed securitizations, and the possible remedies for violations of such standards, vary,
and those standards and remedies are determined by servicing guides maintained by the GSEs,
contracts between the GSEs and individual servicers and topical guides published by the GSEs from
time to time. Such remedies could include indemnification or repurchase of an affected mortgage
loan.

During fourth quarter 2010, we completed our review of our foreclosure procedures related to
affidavit preparation and execution. We identified practices where final steps relating to the
execution of foreclosure affidavits, as well as some aspects of the notarization process were not
adhered to. However, we do

not believe that any of these practices led to unwarranted foreclosures.
In addition, we have enhanced those procedures to help ensure that foreclosure affidavits are
properly prepared, reviewed, and signed.

Any re-execution or redelivery of any documents in connection with foreclosures will involve
costs that may not be legally or otherwise reimbursable to us to the extent they relate to
securitized mortgage loans. Further, if the validity of any foreclosure action is challenged by a
borrower, whether successfully or not, we may incur significant litigation costs, which may not be
reimbursable to us to the extent they relate to securitized mortgage loans. In addition, if a court
were to overturn a foreclosure due to errors or deficiencies in the foreclosure process, we may
have liability to the borrower if the required process was not followed and such failure resulted
in damages to the borrower. We could also have liability to a title insurer that insured the title
to the property sold in foreclosure. Any such liabilities may not be reimbursable to us to the
extent they relate to a securitized mortgage loan.

Other concerns cited within recent press reports are that securitization loan files may be
lacking mortgage notes, assignments or other critical documents required to be produced on behalf
of the trust. Although we believe that we delivered all documents in accordance with the
requirements of each securitization involving our mortgage loans, if any required document with
respect to a securitized mortgage loan sold by us is missing or defective, we would be obligated to
cure the defect or to repurchase the loan.

Some commentators also have suggested that the common industry practice of recording a
mortgage in the name of Mortgage Electronic Registration Systems, Inc. (MERS) creates issues
regarding whether a securitization trust has good title to the mortgage loan. MERS is a company
that acts as mortgagee of record and as agent for the owner of the related mortgage note. When
mortgage notes are assigned, such as between an originator and a securitization trust, the change
of ownership is recorded electronically on a register maintained by MERS, which then acts as agent
for the new owner. The purpose of MERS is to save borrowers and lenders from having to record
assignments of mortgages in county land offices each time ownership of the mortgage note is
assigned. Although MERS has been in existence and used for many years, it has recently been
suggested by some commentators that having a mortgagee of record that is different from the owner
of the mortgage note breaks the chain of title and clouds the ownership of the loan. We do not
believe that to be the case, and believe that the operative legal principle is that the ownership
of a mortgage follows the ownership of the mortgage note, and that a securitization trust should
have good title to a mortgage loan if the note is endorsed and delivered to it, regardless of
whether MERS is the mortgagee of record or whether an assignment of mortgage is recorded to the
trust.

75

Risk Management  Credit Risk Management (continued)

However, in order to foreclose on the mortgage loan, it may be necessary for an assignment
of the mortgage to be completed by MERS to the trust, in order to comply with state law
requirements governing foreclosure. A delay by a servicer in processing any related assignment of
mortgage to the trust could delay foreclosure, with adverse effects
to security holders and potential for servicer liability. Our practice is to obtain assignments of mortgages from MERS during the foreclosure
process.

The FRB and OCC have completed a joint interagency horizontal examination of
foreclosure processing at large mortgage servicers, including Wells Fargo, to
evaluate the adequacy of their controls and governance over bank foreclosure
processes, including compliance with applicable federal and state law.
The OCC and other federal banking regulators are finalizing actions that
will incorporate remedial requirements and sanctions with respect to servicers
within their relevant jurisdictions for identified deficiencies.

Asset/Liability Management

Asset/liability management involves the evaluation, monitoring and management of interest rate
risk, market risk, liquidity and funding. The Corporate Asset/Liability Management Committee
(Corporate ALCO), which oversees these risks and reports periodically to the Finance Committee of
the Board of Directors (Board), consists of senior financial and business executives. Each of our
principal business groups has its own asset/liability management committee and process linked to
the Corporate ALCO process.

INTEREST RATE RISK Interest rate risk, which potentially can have a significant earnings
impact, is an integral part of being a financial intermediary. We are subject to interest rate risk
because:



assets and liabilities may mature or reprice at different times (for example, if assets
reprice faster than liabilities and interest rates are generally falling, earnings will
initially decline);



assets and liabilities may reprice at the same time but by different amounts (for example,
when the general level of interest rates is falling, we may reduce rates paid on checking and
savings deposit accounts by an amount that is less than the general decline in market interest
rates);



short-term and long-term market interest rates may change by different amounts (for
example, the shape of the yield curve may affect new loan yields and funding costs
differently); or



the remaining maturity of various assets or liabilities may shorten or lengthen as interest
rates change (for example, if long-term mortgage interest rates decline sharply, MBS held in
the securities available-for-sale portfolio may prepay significantly earlier than anticipated,
which could reduce portfolio income).

Interest rates may also have a direct or indirect effect on loan demand, credit losses,
mortgage origination volume, the fair value of MSRs and other financial instruments, the value of
the pension liability and other items affecting earnings.

We assess interest rate risk by comparing our most likely earnings plan with various earnings
simulations using many interest rate scenarios that differ in the direction of interest rate
changes, the degree of change over time, the speed of change and the projected shape of the yield
curve. For example, as of December 31, 2010, our most recent simulation indicated estimated
earnings at risk of approximately 5% of our most likely earnings plan over the next 12 months using
a scenario in which the federal funds rate rises to 4.25% and the 10-year Constant Maturity
Treasury bond yield rises to 5.10%. Simulation estimates depend on, and will change with, the size
and mix of our actual and projected balance sheet at the time of each

simulation. Due to timing differences between the quarterly valuation of MSRs and the eventual
impact of interest rates on mortgage banking volumes, earnings at risk in any particular quarter
could be higher than the average earnings at risk over the 12-month simulation period, depending on
the path of interest rates and on our hedging strategies for MSRs. See the Risk Management 
Mortgage Banking Interest Rate and Market Risk section in this Report for more information.

We use exchange-traded and over-the-counter (OTC) interest rate derivatives to hedge our
interest rate exposures. The notional or contractual amount, credit risk amount and estimated net
fair value of these derivatives as of December 31, 2010 and 2009, are presented in Note 15
(Derivatives) to Financial Statements in this Report. We use derivatives for asset/liability
management in three main ways:



to convert a major portion of our long-term fixed-rate debt, which we issue to finance the
Company, from fixed-rate payments to floating-rate payments by entering into receive-fixed
swaps;



to convert the cash flows from selected asset and/or liability instruments/portfolios from
fixed-rate payments to floating-rate payments or vice versa; and

MORTGAGE BANKING INTEREST RATE AND MARKET RISK
We originate, fund and service mortgage
loans, which subjects us to various risks, including credit, liquidity and interest rate risks.
Based on market conditions and other factors, we reduce credit and liquidity risks by selling or
securitizing some or all of the long-term fixed-rate mortgage loans we originate and most of the
ARMs we originate. On the other hand, we may hold originated ARMs and fixed-rate mortgage loans in
our loan portfolio as an investment for our growing base of core deposits. We determine whether the
loans will be held for investment or held for sale at the time of commitment. We may subsequently
change our intent to hold loans for investment and sell some or all of our ARMs or fixed-rate
mortgages as part of our corporate asset/liability management. We may also acquire and add to our
securities available for sale a portion of the securities issued at the time we securitize MHFS.

Notwithstanding the continued downturn in the housing sector, and the continued lack of
liquidity in the nonconforming secondary markets, our mortgage banking revenue remained strong,
reflecting the complementary origination and servicing

76

strengths of the business. The secondary
market for agency-conforming mortgages functioned well during the year.

Interest rate and market risk can be substantial in the mortgage business. Changes in interest
rates may potentially reduce total origination and servicing fees, the value of our residential
MSRs measured at fair value, the value of MHFS and the associated income and loss reflected in
mortgage banking noninterest income, the income and expense associated with instruments (economic
hedges) used to hedge changes in the fair value of MSRs and MHFS, and the value of derivative loan
commitments (interest rate locks) extended to mortgage applicants.

Interest rates affect the amount and timing of origination and servicing fees because consumer
demand for new mortgages and the level of refinancing activity are sensitive to changes in mortgage
interest rates. Typically, a decline in mortgage interest rates will lead to an increase in
mortgage originations and fees and may also lead to an increase in servicing fee income, depending
on the level of new loans added to the servicing portfolio and prepayments. Given the time it takes
for consumer behavior to fully react to interest rate changes, as well as the time required for
processing a new application, providing the commitment, and securitizing and selling the loan,
interest rate changes will affect origination and servicing fees with a lag. The amount and timing
of the impact on origination and servicing fees will depend on the magnitude, speed and duration of
the change in interest rates.

We measure MHFS at fair value for prime MHFS originations for which an active secondary market
and readily available market prices exist to reliably support fair value pricing models used for
these loans. At December 31, 2008, we measured at fair value similar MHFS acquired from Wachovia.
Loan origination fees on these loans are recorded when earned, and related direct loan origination
costs are recognized when incurred. We also measure at fair value certain of our other interests
held related to residential loan sales and securitizations. We believe fair value measurement for
prime MHFS and other interests held, which we hedge with free-standing derivatives (economic
hedges) along with our MSRs measured at fair value, reduces certain timing differences and better
matches changes in the value of these assets with changes in the value of derivatives used as
economic hedges for these assets. During 2009 and 2010, in response to continued secondary market
illiquidity, we continued to originate certain prime non-agency loans to be held for investment for
the foreseeable future rather than to be held for sale. In addition, in 2010, we have originated
certain prime agency-eligible loans to be held for investment as part of our asset/liability
management strategy.

We initially measure all of our MSRs at fair value and carry substantially all of them at fair
value depending on our strategy for managing interest rate risk. Under this method, the MSRs are
recorded at fair value at the time we sell or securitize the related mortgage loans. The carrying
value of MSRs carried at fair value reflects changes in fair value at the end of each quarter and
changes are included in net servicing income, a component of mortgage banking noninterest income.
If the fair value of the MSRs increases, income is recognized; if the fair value of the MSRs
decreases, a loss is recognized. We use a dynamic and sophisticated model to estimate the fair
value of our MSRs and periodically benchmark our estimates to independent appraisals. The valuation
of MSRs can be highly subjective and involve complex judgments by management about matters that are

inherently unpredictable. See Critical Accounting Policies  Valuation of Residential Mortgage
Servicing Rights section of this Report for additional information. Changes in interest rates
influence a variety of significant assumptions included in the periodic valuation of MSRs,
including prepayment speeds, expected returns and potential risks on the servicing asset portfolio,
the value of escrow balances and other servicing valuation elements.

A decline in interest rates generally increases the propensity for refinancing, reduces the
expected duration of the servicing portfolio and therefore reduces the estimated fair value of
MSRs. This reduction in fair value causes a charge to income for MSRs carried at fair value, net of
any gains on free-standing derivatives (economic hedges) used to hedge MSRs. We may choose not to
fully hedge all the potential decline in the value of our MSRs resulting from a decline in interest
rates because the potential increase in origination/servicing fees in that scenario provides a
partial natural business hedge. An increase in interest rates generally reduces the propensity
for refinancing, extends the expected duration of the servicing portfolio and therefore increases
the estimated fair value of the MSRs. However, an increase in interest rates can also reduce
mortgage loan demand and therefore reduce origination income.

The price risk associated with our MSRs is economically hedged with a combination of highly
liquid interest rate forward instruments including mortgage forward contracts, interest rate swaps
and interest rate options. All of the instruments included in the hedge are marked to market daily.
Because the hedging instruments are traded in highly liquid markets, their prices are readily
observable and are fully reflected in each quarters mark to market. Quarterly MSR hedging results
include a combination of directional gain or loss due to market changes as well as any carry income
generated. If the economic hedge is effective, its overall directional hedge gain or loss will
offset the change in the valuation of the underlying MSR asset. Consistent with our longstanding
approach to hedging interest rate risk in the mortgage business, the size of the hedge and the
particular combination of forward hedging instruments at any point in time is designed to reduce
the volatility of the mortgage businesss earnings over various time frames within a range of
mortgage interest rates. Because market factors, the composition of the mortgage servicing
portfolio and the relationship between the origination and servicing sides of our mortgage business
change continually, the types of instruments used in our hedging are reviewed daily and rebalanced
based on our evaluation of current market factors and the interest rate risk inherent in our MSRs
portfolio. Throughout 2010, our economic hedging strategy generally used forward mortgage purchase
contracts that were effective at offsetting the impact of interest rates on the value of the MSR
asset.

Mortgage forward contracts are designed to pass the full economics of the underlying reference
mortgage securities to the holder of the contract, including both the directional gain or loss

77

Risk Management  Asset/Liability Management (continued)

from
the forward delivery of the reference securities and the corresponding carry income. Carry income
represents the contracts price accretion from the forward delivery price to the current spot price
including both the yield earned on the reference securities and the market implied cost of
financing during the period. The actual amount of carry income earned on the hedge each quarter
will depend on the amount of the underlying asset that is hedged and the particular instruments
included in the hedge. The level of carry income is driven by the slope of the yield curve and
other market driven supply and
demand factors affecting the specific reference securities. A steep yield curve generally produces
higher carry income while a flat or inverted yield curve can result in lower or potentially
negative carry income. The level of carry income is also affected by the type of instrument used.
In general, mortgage forward contracts tend to produce higher carry income than interest rate swap
contracts. Carry income is recognized over the life of the mortgage forward as a component of the
contracts mark to market gain or loss.

Hedging the various sources of interest rate risk in mortgage banking is a complex process
that requires sophisticated modeling and constant monitoring. While we attempt to balance these
various aspects of the mortgage business, there are several potential risks to earnings:



Valuation changes for MSRs associated with interest rate changes are recorded in earnings
immediately within the accounting period in which those interest rate changes occur, whereas
the impact of those same changes in interest rates on origination and servicing fees occur
with a lag and over time. Thus, the mortgage business could be protected from adverse changes
in interest rates over a period of time on a cumulative basis but still display large
variations in income from one accounting period to the next.



The degree to which the natural business hedge offsets valuation changes for MSRs is
imperfect, varies at different points in the interest rate cycle, and depends not just on the
direction of interest rates but on the pattern of quarterly interest rate changes.



Origination volumes, the valuation of MSRs and hedging results and associated costs are
also affected by many factors. Such factors include the mix of new business between ARMs and
fixed-rate mortgages, the relationship between short-term and long-term interest rates, the
degree of volatility in interest rates, the relationship between mortgage interest rates and
other interest rate markets, and other interest rate factors. Many of these factors are hard
to predict and we may not be able to directly or perfectly hedge their effect.



While our hedging activities are designed to balance our mortgage banking interest rate
risks, the financial instruments we use may not perfectly correlate with the values and income
being hedged. For example, the change in the value of ARMs production held for sale from
changes in mortgage interest rates may or may not be fully offset by Treasury and LIBOR
index-based financial instruments used as economic hedges for such ARMs. Additionally, the
hedge-carry income we earn on our economic hedges for the MSRs may not continue if the spread
between short-term and long-term rates decreases, we shift composition of the hedge to more
interest rate swaps, or there are other

changes in the market for mortgage forwards that
affect the implied carry.

The total carrying value of our residential and commercial MSRs was $15.9 billion and $17.1
billion at December 31, 2010 and 2009, respectively. The weighted-average note rate on our
portfolio of loans serviced for others was 5.39% and 5.66% at December 31, 2010 and 2009,
respectively. Our total MSRs were 0.86% of mortgage loans serviced for others at December 31, 2010,
compared with 0.91% at December 31, 2009.

As part of our mortgage banking activities, we enter into commitments to fund residential
mortgage loans at specified times in the future. A mortgage loan commitment is an interest rate
lock that binds us to lend funds to a potential borrower at a specified interest rate and within a
specified period of time, generally up to 60 days after inception of the rate lock. These loan
commitments are derivative loan commitments if the loans that will result from the exercise of the
commitments will be held for sale. These derivative loan commitments are recognized at fair value
in the balance sheet with changes in their fair values recorded as part of mortgage banking
noninterest income. The fair value of these commitments include, at inception and during the life
of the loan commitment, the expected net future cash flows related to the associated servicing of
the loan as part of the fair value measurement of derivative loan commitments. Changes subsequent
to inception are based on changes in fair value of the underlying loan resulting from the exercise
of the commitment and changes in the probability that the loan will not fund within the terms of
the commitment, referred to as a fall-out factor. The value of the underlying loan commitment is
affected primarily by changes in interest rates and the passage of time.

Outstanding derivative loan commitments expose us to the risk that the price of the mortgage
loans underlying the commitments might decline due to increases in mortgage interest rates from
inception of the rate lock to the funding of the loan. To minimize this risk, we employ forwards
and options, Eurodollar futures and options, and Treasury futures, forwards and options contracts
as economic hedges against the potential decreases in the values of the loans. We expect that these
derivative financial instruments will experience changes in fair value that will either fully or
partially offset the changes in fair value of the derivative loan commitments. However, changes in
investor demand, such as concerns about credit risk, can also cause changes in the spread
relationships between underlying loan value and the derivative financial instruments that cannot be
hedged.

MARKET RISK  TRADING ACTIVITIES From a market risk perspective, our net income is
exposed to changes in interest rates, credit spreads, foreign exchange rates, equity and commodity
prices and their implied volatilities. The primary purpose of our trading businesses is to
accommodate customers in the management of their market price risks. Also, we take positions based
on market expectations or to benefit from price

78

differences between financial instruments and
markets, subject to risk limits established and monitored by Corporate ALCO. All securities,
foreign exchange transactions, commodity transactions and derivatives used in our trading
businesses are carried at fair value. The Institutional Risk Committee establishes and monitors
counterparty risk limits. The credit risk amount and estimated net fair value of all customer
accommodation derivatives at December 31, 2010 and 2009 are included in Note 15 (Derivatives) to
Financial Statements in this Report. Open, at risk positions for all trading businesses are
monitored by Corporate ALCO.

The standardized approach for monitoring and reporting market risk for the trading activities
consists of value-at-risk (VaR) metrics complemented with factor analysis and stress testing. VaR
measures the worst expected loss over a given time interval and within a given confidence interval.
We measure and report daily VaR at a 99% confidence interval based on actual changes in rates and
prices over the past 250 trading days. The analysis captures all financial instruments that are
considered trading positions. The average one-day VaR throughout 2010 was $32 million, with a lower
bound of $22 million and an upper bound of $52 million. The average VaR for fourth quarter 2010 was
$30 million, with a lower bound of $22 million and an upper bound of $38 million.

MARKET
RISK  EQUITY MARKETS We are directly and indirectly affected by changes in the
equity markets. We make and manage direct equity investments in start-up businesses, emerging
growth companies, management buy-outs, acquisitions and corporate recapitalizations. We also invest
in non-affiliated funds that make similar private equity investments. These private equity
investments are made within capital allocations approved by management and the Board. The Boards
policy is to review business developments, key risks and historical returns for the private equity
investment portfolio at least annually. Management reviews the valuations of these investments at
least quarterly and assesses them for possible OTTI. For nonmarketable investments, the analysis is
based on facts and circumstances of each individual investment and the expectations for that
investments cash flows and capital needs, the viability of its business model and our exit
strategy. Nonmarketable investments include private equity investments accounted for under the cost
method and equity method. Private equity investments are subject to OTTI. Principal investments are
carried at fair value with net unrealized gains and losses reported in noninterest income.

As part of our business to support our customers, we trade public equities, listed/OTC equity
derivatives and convertible bonds. We have risk mandates that govern these activities. We also have
marketable equity securities in the securities available-for-sale portfolio, including securities
relating to our venture capital activities. We manage these investments within capital risk limits
approved by management and the Board and monitored by Corporate ALCO. Gains and losses on these
securities are recognized in net income when realized and periodically include OTTI charges.

Changes in equity market prices may also indirectly affect our net income by affecting (1) the
value of third party assets under management and, hence, fee income, (2) particular borrowers,
whose ability to repay principal and/or interest may be affected by the stock market, or (3)
brokerage activity, related commission income and other business activities. Each business line
monitors and manages these indirect risks.

Included in other assets on the balance sheet. See Note 7 (Premises, Equipment, Lease
Commitments and Other Assets) to Financial Statements in this Report for additional information.

(2)

Included in securities available for sale. See Note 5 (Securities Available for Sale) to
Financial Statements in this Report for additional information.

79

Risk Management  Asset/Liability Management (continued)

LIQUIDITY AND FUNDING The objective of effective liquidity management is to ensure that
we can meet customer loan requests, customer deposit maturities/withdrawals and other cash
commitments efficiently under both normal operating conditions and under unpredictable
circumstances of industry or market stress. To achieve this objective, the Corporate ALCO
establishes and monitors liquidity guidelines that require sufficient asset-based liquidity to
cover potential funding requirements and to avoid over-dependence on volatile, less reliable
funding markets. We set these guidelines for both the consolidated balance sheet and for the Parent
to ensure that the Parent is a source of strength for its regulated, deposit-taking banking
subsidiaries.

Unencumbered debt and equity securities in the securities available-for-sale portfolio provide
asset liquidity, in addition to the immediately liquid resources of cash and due from banks and
federal funds sold, securities purchased under resale agreements and other short-term investments.
The weighted-average expected remaining maturity of the debt securities within this portfolio was
6.1 years at December 31, 2010. Of the $160.1 billion (cost basis) of debt securities in this
portfolio at December 31, 2010, $32.6 billion (20%) is expected to mature or be prepaid in 2011 and
an additional $20.4 billion (13%) in 2012. Asset liquidity is further enhanced by our ability to
sell or securitize loans in secondary markets and to pledge loans to access secured borrowing
facilities through the Federal Home Loan Banks (FHLB) and the FRB. In 2010, we sold mortgage loans
of $363 billion. The amount of mortgage loans and other consumer loans available to be sold,
securitized or pledged was approximately $236 billion at December 31, 2010.

Core customer deposits have historically provided a sizeable source of relatively stable and
low-cost funds. Average core deposits funded 62.9% and 60.4% of average total assets in 2010 and
2009, respectively.

We anticipate making capital expenditures of approximately $1.5 billion in 2011 for our
stores, relocation and remodeling of our facilities, and routine replacement of furniture,
equipment and servers. We fund expenditures from various sources, including retained earnings and
borrowings.

Liquidity is also available through our ability to raise funds in a variety of domestic and
international money and capital markets. We access capital markets for long-term funding through
issuances of registered debt securities, private placements and asset-backed secured funding.
Investors in the long-term capital markets generally will consider, among other factors, a
companys debt rating in making investment decisions. Rating agencies base their ratings on many
quantitative and qualitative factors, including capital adequacy, liquidity, asset quality,
business mix, the level and quality of earnings, and rating agency assumptions regarding the
probability and extent of Federal financial assistance or support for certain large financial
institutions. Adverse changes in these factors could

result in a reduction of our credit rating;
however, a reduction in credit rating would not cause us to violate any of our debt covenants. See
the Risk Factors section of this Report for additional information regarding recent legislative
developments and our credit ratings.

We continue to evaluate the potential impact on liquidity management of regulatory proposals,
including Basel III and those required under the Dodd-Frank Act, as they move closer to the final
rule-making process.

Parent Under SEC rules, the Parent is classified as a well-known seasoned issuer, which allows it
to file a registration statement that does not have a limit on issuance capacity. Well-known
seasoned issuers generally include those companies with a public float of common equity of at
least $700 million or those companies that have issued at least $1 billion in aggregate principal
amount of non-convertible securities, other than common equity, in the last three years. In June
2009, the Parent filed a registration statement with the SEC for the issuance of senior and
subordinated notes, preferred stock and other securities. The Parents ability to issue debt and
other securities under this registration statement is limited by the debt issuance authority
granted by the Board. The Parent is currently authorized by the Board to issue $60 billion in
outstanding short-term debt and $170 billion in outstanding long-term debt. During 2010, the Parent
issued $1.3 billion in non-guaranteed registered senior notes. In February 2011, the Parent
remarketed $2.5 billion of junior subordinated notes in connection with Wachovias 2006 issuance of
5.80% Fixed-to-floating rate Wachovia Income Trust hybrid securities. The junior subordinated notes
were exchanged with Wells Fargo for newly issued senior notes.

The proceeds from securities issued in 2010 were used for general corporate purposes, and we
expect that the proceeds from securities issued in the future will also be used for the same
purposes. The Parent also issues commercial paper from time to time, subject to its short-term debt
limit.

Table 37 provides information regarding the Parents medium-term note (MTN) programs. The
Parent may issue senior and subordinated debt securities under Series I & J, and the European and
Australian programmes. Under Series K, the Parent may issue senior debt securities linked to one or
more indices.

80

Table 37: Medium-Term Note (MTN) Programs

December 31, 2010

Debt

Available

Date

issuance

for

(in billions)

established

authority

issuance

MTN program:

Series I & J (1)

August 2009

$

25.0

21.8

Series K (1)

April 2010

25.0

24.7

European (2)

December 2009

25.0

25.0

Australian (2)(3)

June 2005

10.0

6.8

(1)

SEC registered.

(2)

Not registered with the SEC. May not be offered in the United
States without applicable exemptions from registration. The
Australian MTN amounts are presented in Australian dollars.

(3)

As amended in October 2005 and March 2010.

Wells Fargo Bank, N.A.
Wells Fargo Bank, N.A. is authorized by its board of directors to issue
$100 billion in outstanding short-term debt and $125 billion in outstanding long-term debt. In
December 2007, Wells Fargo Bank, N.A. established a $100 billion bank note program under which,
subject to any other debt outstanding under the limits described above, it may issue $50 billion in
outstanding short-term senior notes and $50 billion in long-term senior or subordinated notes. At
December 31, 2010, Wells Fargo Bank, N.A. had remaining issuance capacity on the bank note program
of $50 billion in short-term senior notes and $50 billion in long-term senior or subordinated
notes. Securities are issued under this program as private placements in accordance with Office of
the Comptroller of the Currency (OCC) regulations.

Wells Fargo Financial Canada Corporation In January 2010, Wells Fargo Financial Canada Corporation
(WFFCC), an indirect wholly owned Canadian subsidiary of the Parent, qualified with the Canadian
provincial securities commissions CAD$7.0 billion in medium-term notes for distribution from time
to time in Canada. At December 31, 2010, CAD$7.0 billion remained available for future issuance.
All medium-term notes issued by WFFCC are unconditionally guaranteed by the Parent.

FEDERAL HOME LOAN BANK MEMBERSHIP We are a member of the Federal Home Loan Banks based in
Dallas, Des Moines and San Francisco (collectively, the FHLBs). Each member of each of the FHLBs is
required to maintain a minimum investment in capital stock of the applicable FHLB. The board of
directors of each FHLB can increase the minimum investment requirements in the event it has
concluded that additional capital is required to allow it to meet its own regulatory capital
requirements. Any increase in the minimum investment requirements outside of specified ranges
requires the approval of the Federal Housing Finance Board. Because the extent of any obligation to
increase our investment in any of the FHLBs depends entirely upon the occurrence of a future event,
potential future payments to the FHLBs are not determinable.

81

Capital Management

We have an active program for managing stockholders equity and regulatory capital and
we maintain a comprehensive process for assessing the Companys overall capital adequacy. We
generate capital internally primarily through the retention of earnings net of dividends. Our
objective is to maintain capital levels at the Company and its bank subsidiaries above the
regulatory well-capitalized thresholds by an amount commensurate with our risk profile. Our
potential sources of stockholders equity include retained earnings and issuances of common and
preferred stock. Retained earnings increased $10.4 billion from December 31, 2009, predominantly
from Wells Fargo net income of $12.4 billion, less common and preferred dividends of $1.8 billion.
During 2010, we issued approximately 87 million shares of common stock, with net proceeds of $1.4
billion, including 28 million shares during the period under various employee benefit (including
our employee stock option plan) and director plans, as well as under our dividend reinvestment and
direct stock purchase programs.

On April 29, 2010, following stockholder approval, the Company amended its certificate of
incorporation to provide for an increase in the number of shares of the Companys common stock
authorized for issuance from 6 billion to 9 billion.

From time to time the Board authorizes the Company to repurchase shares of our common stock.
Although we announce when the Board authorizes share repurchases, we typically do not give any
public notice before we repurchase our shares. Various factors determine the amount and timing of
our share repurchases, including our capital requirements, the number of shares we expect to issue
for acquisitions and employee benefit plans, market conditions (including the trading price of our
stock), and regulatory and legal considerations. The FRB published clarifying supervisory guidance
in first quarter 2009 and amended in December 2009, SR 09-4 Applying Supervisory Guidance and
Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding
Companies, pertaining to the FRBs criteria, assessment and approval process for reductions in
capital. As with all 19 participants in the FRBs Supervisory Capital Assessment Program (SCAP),
under this supervisory letter, before repurchasing our common shares, we must consult with the FRB
staff and demonstrate that the proposed actions are consistent with the existing supervisory
guidance, including demonstrating that our internal capital assessment process is consistent with
the complexity of our activities and risk profile. In 2008, the Board authorized the repurchase of
up to 25 million additional shares of our outstanding common stock. During 2010, we repurchased 3
million shares of our common stock, all from our employee benefit plans. At December 31, 2010, the
total remaining common stock repurchase authority from the 2008 authorization was approximately 3
million shares.

Historically, our policy has been to repurchase shares under the safe harbor conditions of
Rule 10b-18 of the Securities Exchange Act of 1934 including a limitation on the daily volume of
repurchases. Rule 10b-18 imposes an additional daily volume

limitation on share repurchases during
a pending merger or acquisition in which shares of our stock will constitute some or all of the
consideration. Our management may determine that during a pending stock merger or acquisition when
the safe harbor would otherwise be available, it is in our best interest to repurchase shares in
excess of this additional daily volume limitation. In such cases, we intend to repurchase shares in
compliance with the other conditions of the safe harbor, including the standing daily volume
limitation that applies whether or not there is a pending stock merger or acquisition.

In connection with our participation in the TARP Capital Purchase Program (CPP), we issued to
the U.S. Treasury Department warrants to purchase 110,261,688 shares of our common stock with an
exercise price of $34.01 per share expiring on October 28, 2018. On May 26, 2010, in an auction by
the U.S. Treasury, we purchased 70,165,963 of the warrants at a price of $7.70 per warrant. In
addition, we purchased 651,244 warrants from the open market throughout the year. At December 31,
2010, 39,444,481 warrants were outstanding and exercisable. In June 2010, the Board authorized the
purchase of up to $1 billion of the warrants, including the warrants purchased in the auction. As
of December 31, 2010, $455 million of that authority remained. Depending on market conditions, we
may purchase from time to time additional warrants and/or our outstanding debt securities in
privately negotiated or open market transactions, by tender offer or otherwise.

The Company and each of our subsidiary banks are subject to various regulatory capital
adequacy requirements administered by the FRB and the OCC. Risk-based capital (RBC) guidelines
establish a risk-adjusted ratio relating capital to different categories of assets and off-balance
sheet exposures. At December 31, 2010, the Company and each of our subsidiary banks were well
capitalized under applicable regulatory capital adequacy guidelines. See Note 25 (Regulatory and
Agency Capital Requirements) to Financial Statements in this Report for additional information.

Current regulatory RBC rules are based primarily on broad credit-risk considerations and
limited market-related risks, but do not take into account other types of risk a financial company
may be exposed to. Our capital adequacy assessment process contemplates a wide range of risks that
the Company is exposed
to and also takes into consideration our performance under a variety of economic conditions, as
well as regulatory expectations and guidance, rating agency viewpoints and the view of capital
market participants.

Wells
Fargo was a participant in the FRBs Capital Plan Review in
December 2010. We submitted a Capital Plan Review including proposed future dividends and share
repurchase programs to the FRB on January 7,
2011. We cannot guarantee whether or when the FRB will approve our
Capital Plan Review or what
other conditions the FRB may impose on us in order to increase our common stock dividend or
repurchase shares.

In July 2009, the Basel Committee on Bank Supervision published an additional set of
international guidelines for review known as Basel III and finalized these guidelines in December
2010. The additional guidelines were developed in response to the financial crisis of 2009 and 2010
and address many of the weaknesses identified in the banking sector as contributing to

82

the crisis
including excessive leverage, inadequate and low quality capital and insufficient liquidity
buffers. The U.S. regulatory bodies are reviewing the final international standards and final U.S.
rulemaking is expected to be completed in 2011. Although uncertainty exists regarding the final
rules, we are evaluating the impact of Basel III on our capital ratios based on our interpretation
of the proposed capital requirements and expect to be above a 7% Tier 1 common equity ratio under
Basel III within the next few quarters.

We are well underway toward Basel II and Basel III implementation and are currently on
schedule to enter the

parallel run phase of Basel II in 2012 with regulatory approval. Our delayed
entry into the parallel run phase was approved by the FRB in 2010 as a result of the acquisition of
Wachovia.

At December 31, 2010, stockholders equity and Tier 1 common equity levels were higher than
the quarter ending prior to the Wachovia acquisition. During 2009, as regulators and the market
focused on the composition of regulatory capital, the Tier 1 common equity ratio gained significant
prominence as a metric of capital strength. There is no mandated minimum or well capitalized
standard for Tier 1 common equity; instead the RBC rules state voting common stockholders equity
should be the dominant element within Tier 1 common equity. Tier 1 common equity was $81.3 billion
at December 31, 2010, or 8.30% of risk-weighted assets, an increase of $15.8 billion from December
31, 2009. Table 38 provides the details of the Tier 1 common equity calculation.

Table 38: Tier 1 Common Equity (1)

December 31

,

(in billions)

2010

2009

Total equity

$

127.9

114.4

Noncontrolling interests

(1.5

)

(2.6

)

Total Wells Fargo stockholders equity

126.4

111.8

Adjustments:

Preferred equity

(8.1

)

(8.1

)

Goodwill and intangible assets (other than MSRs)

(35.5

)

(37.7

)

Applicable deferred taxes

4.3

5.3

Deferred tax asset limitation



(1.0

)

MSRs over specified limitations

(0.9

)

(1.6

)

Cumulative other comprehensive income

(4.6

)

(3.0

)

Other

(0.3

)

(0.2

)

Tier 1 common equity

(A)

$

81.3

65.5

Total risk-weighted assets (2)

(B)

$

980.0

1,013.6

Tier 1 common equity to total risk-weighted assets

(A)/(B)

8.30

%

6.46

(1)

Tier 1 common equity is a non-generally accepted accounting principle (GAAP) financial measure that is
used by investors, analysts and bank regulatory agencies to assess the capital position of financial
services companies. Tier 1 common equity includes total Wells Fargo stockholders equity, less
preferred equity, goodwill and intangible assets (excluding MSRs), net of related deferred taxes,
adjusted for specified Tier 1 regulatory capital limitations covering deferred taxes, MSRs, and
cumulative other comprehensive income. Management reviews Tier 1 common equity along with other
measures of capital as part of its financial analyses and has included this non-GAAP financial
information, and the corresponding reconciliation to total equity, because of current interest in such
information on the part of market participants.

(2)

Under the regulatory guidelines for risk-based capital, on-balance sheet assets and credit equivalent
amounts of derivatives and off-balance sheet items are assigned to one of several broad risk categories
according to the obligor or, if relevant, the guarantor or the nature of any collateral. The aggregate
dollar amount in each risk category is then multiplied by the risk weight associated with that
category. The resulting weighted values from each of the risk categories are aggregated for determining
total risk-weighted assets.

83

Critical Accounting Policies

Our significant accounting policies (see Note 1 (Summary of Significant Accounting
Policies) to Financial Statements in this Report) are fundamental to understanding our results of
operations and financial condition because they require that we use estimates and assumptions that
may affect the value of our assets or liabilities and financial results. Six of these policies are
critical because they require management to make difficult, subjective and complex judgments about
matters that are inherently uncertain and because it is likely that materially different amounts
would be reported under different conditions or using different assumptions. These policies govern:



the allowance for credit losses;



purchased credit-impaired (PCI) loans;



the valuation of residential mortgage servicing rights (MSRs);



liability for mortgage loan repurchase losses;



the fair valuation of financial instruments; and



income taxes.

Management has reviewed and approved these critical accounting policies and has discussed
these policies with the Boards Audit and Examination Committee.

Allowance for Credit Losses

The allowance for credit losses, which consists of the allowance for loan losses and the
allowance for unfunded credit commitments, is managements estimate of credit losses inherent in
the loan portfolio at the balance sheet date, excluding loans carried at fair value. We develop and
document our allowance methodology at the portfolio segment level. Our loan portfolio consists of a
commercial loan portfolio segment and a consumer loan portfolio segment.

We employ a disciplined process and methodology to establish our allowance for credit losses.
The total allowance for credit losses considers both impaired and unimpaired loans. While our
methodology attributes portions of the allowance to specific portfolio segments, the entire
allowance for credit losses is available to absorb credit losses inherent in the total loan
portfolio. No single statistic or measurement determines the adequacy of the allowance for credit
losses.

COMMERCIAL PORTFOLIO SEGMENT The allowance for credit losses for unimpaired commercial
loans is estimated through the application of loss factors to loans based on credit risk rating for
each loan. In addition, the allowance for credit losses for unfunded commitments, including letters
of credit, is estimated by applying these loss factors to loan equivalent exposures. The loss
factors reflect the estimated default probability and quality of the underlying collateral. The
loss factors used are statistically derived through the observation of historical losses incurred
for loans within each credit risk rating over a relevant specified period of time. As appropriate,
we adjust or supplement these loss factors and estimates to reflect other risks that may be
identified from current conditions and developments in selected portfolios.

The allowance also includes an amount for estimated credit losses on impaired loans such as
nonaccrual loans and loans that have been modified in a TDR, whether on accrual or nonaccrual
status.

CONSUMER PORTFOLIO SEGMENT Loans are pooled generally by product type with similar risk
characteristics. Losses are estimated using forecasted losses to represent our best estimate of
inherent loss based on historical experience, quantitative and other mathematical techniques over
the loss emergence period. Each business group exercises significant judgment in the determination
of the credit loss estimation model that fits the credit risk characteristics of its portfolio. We
use both internally developed and vendor supplied models in this process. We often use roll rate or
net flow models for near-term loss projections, and vintage-based models, behavior score models,
and time series or statistical trend models for longer-term projections. Management must use
judgment in establishing additional input metrics for the modeling processes, considering further
stratification into sub-product, origination channel, vintage, loss type, geographic location and
other predictive characteristics. In addition, we establish an allowance for consumer loans
modified in a TDR, whether on accrual or nonaccrual status.

The models used to determine the allowance are validated by an independent internal model
validation group operating in accordance with Company policies.

OTHER ACL MATTERS An allowance for impaired consumer and commercial loans that have been
modified in a TDR is measured based on an estimate of cash flows, both principal and interest,
expected to be collected or an assessment of the fair value of collateral underlying the impaired
loan, if applicable. Management exercises significant judgment to develop these estimates.

Commercial and consumer PCI loans may require an allowance subsequent to their acquisition.
This allowance requirement is due to probable decreases in expected principal and interest cash
flows (other than due to decreases in interest rate indices and changes in prepayment assumptions).

The allowance for credit losses for both portfolio segments includes an amount for imprecision
or uncertainty that may change from period to period. This amount represents managements judgment
of risks inherent in the processes and assumptions used in establishing the allowance. This
imprecision considers economic environmental factors, modeling assumptions and performance, process
risk, and other subjective factors, including industry trends.

SENSITIVITY TO CHANGES Changes in the allowance for credit losses and, therefore, in the
related provision expense can materially affect net income. The establishment of the allowance for
credit losses relies on a consistent quarterly process that requires significant management review
and judgment. Management considers changes in economic conditions, customer behavior, and collateral value, among other influences. From time to time, economic
factors or business decisions, such

84

as the addition or liquidation of a loan product or business
unit, may affect the loan portfolio, causing management to provide or release amounts from the
allowance for credit losses.

The allowance for credit losses for commercial loans, including unfunded credit commitments
(individually risk weighted) is sensitive to credit risk ratings assigned to each credit exposure.
Commercial loan risk ratings are evaluated based on each situation by experienced senior credit
officers and are subject to periodic review by an independent internal team of credit specialists.

The allowance for credit losses for consumer loans (statistically modeled) is sensitive to
economic assumptions and delinquency trends. Forecasted losses are modeled using a range of
economic scenarios.

Assuming a one risk rating downgrade throughout our commercial portfolio segment, a stressed
economic scenario for modeled losses on our consumer portfolio segment and incremental
deterioration in our PCI portfolio could imply an additional allowance requirement of approximately
$10.7 billion.

Assuming a one risk rating upgrade throughout our commercial portfolio segment and a strong
recovery economic scenario for modeled losses on our consumer portfolio segment could imply a
reduced allowance requirement of approximately $4.5 billion.

The sensitivity analyses provided are hypothetical scenarios and are not considered probable.
They do not represent managements view of inherent losses in the portfolio as of the balance sheet
date. Because significant judgment is used, it is possible that others performing similar analyses
could reach different conclusions.

See the Risk Management  Credit Risk Management section and Note 6 (Loans and Allowance
for Credit Losses) to Financial Statements in this Report for further discussion of our allowance.

Purchased Credit-Impaired (PCI) Loans

Loans purchased with evidence of credit deterioration since origination and for which it is
probable that all contractually required payments will not be collected are considered to be credit
impaired. Our PCI loans represent loans acquired in the Wachovia merger that were deemed to be
credit-impaired. PCI loans are initially measured at fair value, which includes estimated future
credit losses expected to be incurred over the life of the loan. Accordingly, the historical
allowance for credit losses related to these loans was not carried over.

Management evaluated whether there was evidence of credit quality deterioration as of the
purchase date using indicators such as past due and nonaccrual status, commercial risk ratings,
recent borrower credit scores and recent loan-to-value percentages.

The fair value at acquisition was based on an estimate of cash flows, both principal and
interest, expected to be collected, discounted at the prevailing market rate of interest. We
estimated the cash flows expected to be collected at acquisition using our internal credit risk,
interest rate risk and prepayment

risk models, which incorporate our best estimate of current key assumptions, such as property
values, default rates, loss severity and prepayment speeds.

Substantially all commercial and industrial, CRE and foreign PCI loans are accounted for as
individual loans. Conversely, Pick-a-Pay and other consumer PCI loans have been aggregated into
several pools based on common risk characteristics. Each pool is accounted for as a single asset
with a single composite interest rate and an aggregate expectation of cash flows.

The excess of cash flows expected to be collected over the carrying value (estimated fair
value at acquisition date) is referred to as the accretable yield and is recognized in interest
income using an effective yield method over the remaining life of the loan, or pool of loans, in
situations where there is a reasonable expectation about the timing and amount of cash flows
expected to be collected. The difference between the contractually required payments and the cash
flows expected to be collected at acquisition, considering the impact of prepayments, is referred
to as the nonaccretable difference.

Subsequent to acquisition, we regularly evaluate our estimates of cash flows expected to be
collected. These evaluations, performed quarterly, require the continued usage of key assumptions
and estimates, similar to our initial estimate of fair value. We must apply judgment to develop our
estimates of cash flows for PCI loans given the impact of home price and property value changes,
changing loss severities, modification activity, and prepayment speeds.

If we have probable decreases in cash flows expected to be collected (other than due to
decreases in interest rate indices and changes in prepayment assumptions), we charge the provision
for credit losses, resulting in an increase to the allowance for loan losses. If we have probable
and significant increases in cash flows expected to be collected, we first reverse any previously
established allowance for loan losses and then increase interest income as a prospective yield
adjustment over the remaining life of the loan, or pool of loans. Estimates of cash flows are
impacted
by changes in interest rate indices for variable rate loans and prepayment assumptions, both
of which are treated as prospective yield adjustments included in interest income.

Resolutions of loans may include sales of loans to third parties, receipt of payments in
settlement with the borrower, or foreclosure of the collateral. Our policy is to remove an
individual loan from a pool based on comparing the amount received from its resolution with its
contractual amount. Any difference between these amounts is absorbed by the nonaccretable
difference for the entire pool. This removal method assumes that the amount received from
resolution approximates pool performance expectations. The remaining accretable yield balance is
unaffected and any material change in remaining effective yield caused by this removal method is
addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved
by payment in full, there is no release of the nonaccretable difference for the pool because there
is no difference between the amount received at resolution and the contractual amount of the loan.
Modified PCI loans are not removed from a pool even if those loans would otherwise be deemed TDRs.
Modified PCI loans that are accounted for individually are considered TDRs, and removed from PCI
accounting if there has been a concession granted in excess of the original nonaccretable
difference.

85

Critical Accounting Policies (continued)

The amount of cash flows expected to be collected and, accordingly, the adequacy of the
allowance for loan loss due to certain decreases in cash flows expected to be collected, is
particularly sensitive to changes in loan credit quality. The sensitivity of the overall allowance
for credit losses, including PCI loans, is presented in the preceding section, Critical Accounting
Policies  Allowance for Credit Losses.

PCI loans that were classified as nonperforming loans by Wachovia are no longer classified as
nonperforming because, at acquisition, we believe we will fully collect the new carrying value of
these loans and due to the existence of the accretable yield. It is important to note that judgment
is required to classify PCI loans as performing and is dependent on having a reasonable expectation
about the timing and amount of cash flows expected to be collected, even if the loan is
contractually past due.

See the Risk Management  Credit Risk Management section and Note 6 (Loans and Allowance
for Credit Losses) to Financial Statements in this Report for further discussion of PCI loans.

Valuation of Residential Mortgage Servicing Rights

Mortgage servicing rights (MSRs) are assets that represent the rights to service mortgage loans
for others. We recognize MSRs when we purchase servicing rights from third parties, or retain
servicing rights in connection with the sale or securitization of loans we originate (asset
transfers). We also have MSRs acquired in the past under co-issuer agreements that provide for us
to service loans that were originated and securitized by third-party correspondents. We initially
measure and carry substantially all of our MSRs related to residential mortgage loans at fair
value.

At the end of each quarter, we determine the fair value of MSRs using a valuation model that
calculates the present value of estimated future net servicing income. The model incorporates
assumptions that market participants use in estimating future net servicing income, including
estimates of prepayment speeds (including housing price volatility), discount rate, default rates,
cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual
servicing fee income, ancillary income and late fees.

To reduce the sensitivity of earnings to interest rate and market value fluctuations, we may
use securities available for sale and free-standing derivatives (economic hedges) to hedge the risk
of changes in the fair value of MSRs, with the resulting gains or losses reflected in income.
Changes in the fair value of the MSRs from changing mortgage interest rates are generally offset by
gains or losses in the fair value of the derivatives and the particular instruments used to hedge
the MSRs. In addition, we also consider origination volume in our risk management strategy as it
tends to act as a natural hedge. For example, as interest rates decline, servicing values
generally decrease and fees from origination volume tend to increase. Conversely, as interest rates
increase, the fair value of the MSRs generally increases, while fees from origination volume tend
to decline. See the Risk Management  Mortgage Banking Interest Rate and

Market Risk section in this Report for discussion of the timing of the effect of changes in mortgage interest rates.

Net servicing income, a component of mortgage banking noninterest income, includes the changes
from period to period in fair value of both our residential MSRs and the free-standing derivatives
(economic hedges) used to hedge our residential MSRs. Changes in the fair value of residential MSRs
from period to period result from (1) changes in the valuation model inputs or assumptions
(principally reflecting changes in discount rates and prepayment speed assumptions, mostly due to
changes in interest rates and costs to service, including delinquency and foreclosure costs), and
(2) other changes, representing changes due to collection/realization of expected cash flows.

We use a dynamic and sophisticated model to estimate the value of our MSRs. The model is
validated by an independent internal model validation group operating in accordance with Company
policies. Senior management reviews all significant assumptions quarterly. Mortgage loan prepayment
speed  a key assumption in the model  is the annual rate at which borrowers are forecasted to
repay their mortgage loan principal. The discount rate used to determine the present value of
estimated future net servicing income  another key assumption in the model  is the required
rate of return investors in the market would expect for an asset with similar risk. To determine
the discount rate, we consider the risk premium for uncertainties from servicing operations (e.g.,
possible changes in future servicing costs, ancillary income and earnings on escrow
accounts). Both assumptions can, and generally will, change quarterly as market conditions and
interest rates change. For example, an increase in either the prepayment speed or discount rate
assumption results in a decrease in the fair value of the MSRs, while a decrease in either
assumption would result in an increase in the fair value of the MSRs. In recent years, there have
been significant market-driven fluctuations in loan prepayment speeds and the discount rate. These
fluctuations can be rapid and may be significant in the future. Therefore, estimating prepayment
speeds within a range that market participants would use in determining the fair value of MSRs
requires significant management judgment.

The valuation and sensitivity of MSRs is discussed further in Note 1 (Summary of Significant
Accounting Policies), Note 8 (Securitizations and Variable Interest Entities), Note 9 (Mortgage
Banking Activities) and Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in
this Report.

Liability for Mortgage Loan Repurchase Losses

We sell residential mortgage loans to various parties, including (1) Freddie Mac and Fannie Mae
(GSEs), which include the mortgage loans in GSE-guaranteed mortgage securitizations, (2) special
purpose entities that issue private label MBS, and (3) other financial institutions that purchase
mortgage loans for investment or private label securitization. In addition, we pool FHA-insured and
VA-guaranteed mortgage loans, which back securities guaranteed by GNMA. The agreements under which
we sell mortgage loans and the insurance or guaranty agreements with FHA and VA contain provisions
that include various representations and warranties regarding the
origination and characteristics of the mortgage loans. Although the specific representations and warranties vary among different
sales, insurance or guarantee agreements, they typically cover ownership of the loan, compliance
with loan criteria set forth in the applicable agreement, validity of the lien securing the loan,

86

absence of delinquent taxes or liens against the property securing the loan, compliance with
applicable origination laws, and other matters. For more information about these loan sales and the
related risks that may result in liability see the Risk Management  Credit Risk Management 
Liability for Mortgage Loan Repurchase Losses section in this Report.

We may be required to repurchase mortgage loans, indemnify the securitization trust, investor
or insurer, or reimburse the securitization trust, investor or insurer for credit losses incurred
on loans (collectively repurchase) in the event of a breach of contractual representations or
warranties that is not remedied within a period (usually 90 days or less) after we receive notice
of the breach. Typically, we would only be required to repurchase securitized loans if any such
breach is deemed to have material and adverse effect on the value of the mortgage loan or to the
interests of the security holders in the mortgage loan. The time periods specified in our mortgage
loan sales contracts to respond to repurchase requests vary, but are generally 90 days or less.
While many contracts do not include specific remedies if the applicable time period for a response
is not met, contracts for mortgage loan sales to the GSEs include various types of specific
remedies and penalties that could be applied to inadequate responses to repurchase requests.
Similarly, the agreements under which we sell mortgage loans require us to deliver various
documents to the securitization trust or investor, and we may be obligated to repurchase any
mortgage loan for which the required documents are not delivered or are defective. Upon receipt of
a repurchase request, we work with securitization trusts, investors or insurers to arrive at a
mutually agreeable resolution. Repurchase demands are typically reviewed on an individual loan by
loan basis to validate the claims made by the securitization trust, investor or insurer, and to
determine whether a contractually required repurchase event occurred. Occasionally, in lieu of
conducting the loan level evaluation, we may negotiate global settlements in order to resolve a
pipeline of demands in lieu of repurchasing the loans. We manage the risk associated with potential
repurchases or other forms of settlement through our underwriting and quality assurance practices
and by servicing mortgage loans to meet investor and secondary market standards.

We establish mortgage repurchase liabilities related to various representations and warranties
that reflect managements estimate of losses for loans for which we could have repurchase
obligation, whether or not we currently service those loans, based on a combination of factors.
Such factors incorporate estimated levels of defects based on internal quality assurance sampling,
default expectations, historical investor repurchase demand and appeals success rates (where the
investor rescinds the demand based on a cure of the defect or acknowledges that the loan satisfies
the investors applicable representations and warranties), reimbursement by correspondent and other
third party originators, and projected

loss severity. We establish a liability at the time loans
are sold and continually update our liability estimate during their life. Although investors may
demand repurchase at any time, the majority of repurchase demands occur in the first 24 to 36
months following origination of the mortgage loan and can vary by investor. Most repurchases under
our representation and warranty provisions are attributable to borrower misrepresentations and
appraisals obtained at origination that investors believe do not fully comply with applicable
industry standards.

Although, to date, repurchase demands with respect to private label mortgage-backed securities
have been more limited than with respect to GSE-guaranteed securities, it is possible that requests
to repurchase mortgage loans in private label securitizations may increase in frequency as
investors explore every possible avenue to recover losses on their securities. In addition, the
Federal Housing Finance Agency, as conservator of Freddie Mac and Fannie Mae, recently used its
subpoena power to request loan applications, property appraisals and other documents from large
mortgage securitization industry participants, including us, relating to private label MBS in order
to determine whether breaches of representations and warranties exist in those securities owned by
the GSEs. We believe the risk of repurchase in our private label securitizations is substantially
reduced, relative to other private label securitizations, because approximately half of the private
label securitizations that include our mortgage loans do not contain representations and warranties
regarding borrower or other third party misrepresentations related to the mortgage loan, general
compliance with underwriting guidelines, or property valuation, which are commonly asserted bases
for repurchase. We evaluate the validity and materiality of any claim of breach of representations
and warranties in private label MBS that is brought to our attention and work with securitization
trustees to resolve any repurchase requests. Nevertheless, we may be subject to legal and other
expenses if private label securitization trustees or investors choose to commence legal proceedings
in the event of disagreements.

The mortgage loan repurchase liability at December 31, 2010, represents our best
estimate of the probable loss that we may incur for various representations and warranties in the
contractual provisions of our sales of mortgage loans. Because the level of mortgage loan
repurchase losses are dependent on economic factors, investor demand strategies and other external
conditions that may change over the life of the underlying loans, the level of the liability for
mortgage loan repurchase losses is difficult to estimate and requires considerable management
judgment. We maintain regular contact with the GSEs and other significant investors to monitor and
address their repurchase demand practices and concerns. For additional information on our
repurchase liability, including an adverse impact analysis, see the Risk Management  Credit Risk
Management  Liability for Mortgage Loan Repurchase Losses section in this Report.

Fair Valuation of Financial Instruments

We use fair value measurements to record fair value adjustments to certain financial
instruments and to determine fair value disclosures. Trading assets, securities available for sale,
derivatives, prime residential MHFS, certain commercial LHFS, principal investments and securities
sold but not yet purchased (short sale liabilities) are recorded at fair value on a recurring
basis. Additionally, from time to time, we may be required to record at fair value other assets on
a nonrecurring basis, such as certain MHFS and LHFS, loans held for investment and certain

87

Critical Accounting Policies (continued)

other
assets. These nonrecurring fair value adjustments typically involve application of
lower-of-cost-or-market accounting or write-downs of individual assets. Additionally, for financial
instruments not recorded at fair value we disclose the estimate of their fair value.

Fair value represents the price that would be received to sell the financial asset or paid to
transfer the financial liability in an orderly transaction between market participants at the
measurement date.

The accounting provisions for fair value measurements include a three-level hierarchy for
disclosure of assets and liabilities recorded at fair value. The classification of assets and
liabilities within the hierarchy is based on whether the inputs to the valuation methodology used
for measurement are observable or unobservable. Observable inputs reflect market-derived or
market-based information obtained from independent sources, while unobservable inputs reflect our
estimates about market data.



Level 1  Valuation is based upon quoted prices for identical instruments traded in active
markets. Level 1 instruments include securities traded on active exchange markets, such as the
New York Stock Exchange, as well as U.S. Treasury and other U.S. government securities that
are traded by dealers or brokers in active OTC markets.



Level 2  Valuation is based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not active, and
model-based valuation techniques, such as matrix pricing, for which all significant
assumptions are observable in the market. Level 2 instruments include securities traded in
functioning dealer or broker markets, plain-vanilla interest rate derivatives and MHFS that
are valued based on prices for other mortgage whole loans with similar characteristics.



Level 3  Valuation is generated primarily from model-based techniques that use
significant assumptions not observable in the market. These unobservable assumptions reflect
our own estimates of assumptions market participants would use in pricing the asset or
liability. Valuation techniques include use of option pricing models, discounted cash flow
models and similar techniques.

When developing fair value measurements, we maximize the use of observable inputs and minimize
the use of unobservable inputs. When available, we use quoted prices in active markets to measure
fair value. If quoted prices in active markets are not available, fair value measurement is based
upon models that use primarily market-based or independently sourced market parameters, including
interest rate yield curves, prepayment speeds, option volatilities and currency rates. However, in
certain cases, when market observable inputs for model-based

valuation techniques are not readily
available, we are required to
make judgments about assumptions market participants would use to estimate the fair value.

The degree of management judgment involved in determining the fair value of a financial
instrument is dependent upon the availability of quoted prices in active markets or observable
market parameters. For financial instruments with quoted market prices or observable market
parameters in active markets, there is minimal subjectivity involved in measuring fair value. When
quoted prices and observable data in active markets are not fully available, management judgment is
necessary to estimate fair value. Changes in the market conditions, such as reduced liquidity in
the capital markets or changes in secondary market activities, may reduce the availability and
reliability of quoted prices or observable data used to determine fair value. When significant
adjustments are required to price quotes or inputs, it may be appropriate to utilize an estimate
based primarily on unobservable inputs. When an active market for a financial instrument does not
exist, the use of management estimates that incorporate current market participant expectations of
future cash flows, adjusted for an appropriate risk premium, is acceptable.

When markets for our financial assets and liabilities become inactive because the level and
volume of activity has declined significantly relative to normal conditions, it may be appropriate
to adjust quoted prices. The methodology we use to adjust the quoted prices generally involves
weighting the quoted prices and results of internal pricing techniques, such as the net present
value of future expected cash flows (with observable inputs, where available) discounted at a rate
of return market participants require to arrive at the fair value. The more active and orderly
markets for particular security classes are determined to be, the more weighting we assign to
quoted prices. The less active and orderly markets are determined to be, the less weighting we
assign to quoted prices.

We may use independent pricing services and brokers to obtain fair values based on quoted
prices. We determine the most appropriate and relevant pricing service for each security class and
generally obtain one quoted price for each security. For certain securities, we may use internal
traders to obtain quoted prices. Quoted prices are subject to our internal price verification
procedures. We validate prices received using a variety of methods, including, but not limited to,
comparison to pricing services, corroboration of pricing by reference to other independent market
data such as secondary broker quotes and relevant benchmark indices, and review of pricing by
Company personnel familiar with market liquidity and other market-related conditions.

Significant judgment is also required to determine whether certain assets measured at fair
value are included in Level 2 or Level 3. When making this judgment, we consider all available
information, including observable market data, indications of market liquidity and orderliness, and
our understanding of the valuation techniques and significant inputs used. For securities in
inactive markets, we use a predetermined percentage to evaluate the impact of fair value
adjustments derived from weighting both external and internal
indications of value to determine if
the instrument is classified as Level 2 or Level 3. Otherwise, the classification of Level 2 or
Level 3 is based upon the specific facts and circumstances of each instrument or instrument
category and judgments are made regarding the significance of the Level 3 inputs to the
instruments fair value measurement in its entirety. If Level 3 inputs are considered significant,
the instrument is classified as Level 3.

Table 39 presents the summary of the fair value of financial instruments recorded at fair
value on a recurring basis, and the amounts measured using significant Level 3 inputs (before
derivative netting adjustments). The fair value of the remaining assets and liabilities were
measured using valuation methodologies involving market-based or market-derived information,
collectively Level 1 and 2 measurements.

Table 39: Fair Value Level 3 Summary

December 31

,

2010

2009

Total

Total

($ in billions)

balance

Level 3 (1)

balance

Level 3 (1)

Assets
carried at fair value

$

293.1

47.9

277.4

52.0

As a percentage
of total assets

23

%

4

22

4

Liabilities
carried at fair value

$

21.2

6.4

21.7

6.9

As a
percentage of total liabilities

2

%

1

2

1

(1)

Before derivative netting adjustments.

See Note 16 (Fair Values of Assets and Liabilities) to Financial Statements in this Report
for a complete discussion on our use of fair valuation of financial instruments, our related
measurement techniques and its impact to our financial statements.

Income Taxes

We are subject to the income tax laws of the U.S., its states and municipalities and those of
the foreign jurisdictions in which we operate. Our income tax expense consists of two components:
current and deferred. Current income tax expense approximates taxes to be paid or refunded for the
current period and includes income tax expense related to our uncertain tax positions. We determine
deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset
or liability is based on the tax effects of the differences between the book and tax bases of
assets and liabilities, and recognized enacted changes in tax rates and laws in the period in which
they occur. Deferred income tax expense results from changes in

deferred tax assets and liabilities
between periods. Deferred tax assets are recognized subject to managements judgment that
realization is more likely than not. Uncertain tax positions that meet the more likely than not
recognition threshold are measured to determine the amount of benefit to recognize. An uncertain
tax position is measured at the largest amount of benefit that management believes has a greater
than 50% likelihood of realization upon settlement. Foreign taxes paid are generally applied as
credits to reduce federal income taxes payable. We account for interest and penalties as a
component of income tax expense.

The income tax laws of the jurisdictions in which we operate are complex and subject to
different interpretations by the taxpayer and the relevant government taxing authorities. In
establishing a provision for income tax expense, we must make judgments and interpretations about
the application of these inherently complex tax laws. We must also make estimates about when in the
future certain items will affect taxable income in the various tax jurisdictions by the government
taxing authorities, both domestic and foreign. Our interpretations may be subjected to review
during examination by taxing authorities and disputes may arise over the respective tax positions.
We attempt to resolve these disputes during the tax examination and audit process and ultimately
through the court systems when applicable.

We monitor relevant tax authorities and revise our estimate of accrued income taxes due to
changes in income tax laws and their interpretation by the courts and regulatory authorities on a
quarterly basis. Revisions of our estimate of accrued income taxes also may result from our own
income tax planning and from the resolution of income tax controversies. Such revisions in our
estimates may be material to our operating results for any given quarter.

See Note 20 (Income Taxes) to Financial Statements in this Report for a further description of
our provision for income taxes and related income tax assets and liabilities.

89

Current Accounting Developments

The following accounting pronouncement has been issued by the Financial Accounting
Standards Board (FASB):

ASU 2011-01 defers the effective date for disclosures on TDRs. The deferral is intended to provide
the FASB with additional

time to complete a separate TDRs project, with new disclosures expected to
be effective for second quarter 2011. For more information on the disclosure requirements for TDRs,
see the discussion on ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses, in Note 1 (Summary of Significant Accounting Policies) to
Financial Statements in this Report.

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words
such as anticipates, intends, plans, seeks, believes, estimates, expects, projects,
outlook, forecast, will, may, could, should, can and similar references to future
periods. Examples of forward-looking statements in this Report include, but are not limited to,
statements we make about: (i) future results of the Company; (ii) future credit quality and
expectations regarding future loan losses in our loan portfolios and life-of-loan estimates,
including our belief that quarterly total credit losses have peaked and that our credit cycle is
turning; the level and loss content of NPAs and nonaccrual loans as well as the level of inflows
and outflows into NPAs; the adequacy of the allowance for credit losses, including our current
expectation of future reductions in the allowance for credit losses; and the reduction or
mitigation of risk in our loan portfolios and the effects of loan modification programs; (iii) the
merger integration of the Company and Wachovia, including expense savings, merger costs and revenue
synergies; (iv) our mortgage repurchase exposure and exposure relating to our foreclosure
practices; (v) future capital levels and our expectations that we will be above a 7% Tier 1 common
equity ratio under proposed Basel III capital standards within the next few quarters; (vi) the
expected outcome and impact of legal, regulatory and legislative developments; and (vii) the
Companys plans, objectives and strategies.

Forward-looking statements are based on our current expectations and assumptions regarding our
business, the economy and other future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and changes in circumstances that are
difficult to predict. Our actual results may differ materially from those contemplated by the
forward-looking statements. We caution you, therefore, against relying on any of these
forward-looking statements. They are neither statements of historical fact nor guarantees or
assurances of future performance. While there is no assurance that any list of risks and
uncertainties or risk factors is complete, important factors that could cause actual results to
differ materially from those in the forward-looking statements include the following, without
limitation:



current and future economic and market conditions, including the effects of further
declines in housing prices and high unemployment rates;



our capital and liquidity requirements (including under regulatory capital standards, such
as the proposed Basel III capital standards, as determined and interpreted by applicable
regulatory authorities) and our ability to generate capital internally or raise capital on
favorable terms;



financial services reform and other current, pending or future legislation or regulation
that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act
and legislation and regulation relating to overdraft fees (and changes to our overdraft
practices as a result thereof), debit card interchange fees, credit cards, and other bank
services;



legislative proposals to allow mortgage cram-downs in bankruptcy or require other loan
modifications;



the extent of our success in our loan modification efforts, as well as the effects of
regulatory requirements or guidance regarding loan modifications or changes in such
requirements or guidance;



the amount of mortgage loan repurchase demands that we receive and our ability to satisfy
any such demands without having to repurchase loans related thereto or otherwise indemnify or
reimburse third parties, and the credit quality of or losses on such repurchased mortgage
loans;



negative effects relating to mortgage foreclosures, including changes in our procedures or
practices and/or industry standards or practices, regulatory or judicial requirements,
penalties or fines, increased costs, or delays or moratoriums on foreclosures;



our ability to successfully integrate the Wachovia merger and realize the expected cost
savings and other benefits and the effects of any delays or disruptions in systems conversions
relating to the Wachovia integration;



our ability to realize the efficiency initiatives to lower expenses when and in the amount
expected;



recognition of OTTI on securities held in our available-for-sale portfolio;



the effect of changes in interest rates on our net interest margin and our mortgage
originations, MSRs and MHFS;



hedging gains or losses;

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

disruptions in the capital markets and reduced investor demand for mortgage loans;



our ability to sell more products to our customers;



the effect of the economic recession on the demand for our products and services;



the effect of the fall in stock market prices on our investment banking business and our
fee income from our brokerage, asset and wealth management businesses;



our election to provide support to our mutual funds for structured credit products they may
hold;



changes in the value of our venture capital investments;



changes in our accounting policies or in accounting standards or in how accounting
standards are to be applied or interpreted;



mergers, acquisitions and divestitures;



changes in the Companys credit ratings and changes in the credit quality of the Companys
customers or counterparties;

the loss of checking and savings account deposits to other investments such as the stock
market, and the resulting increase in our funding costs and impact on our net interest margin;



fiscal and monetary policies of the FRB; and



the other risk factors and uncertainties described under Risk Factors in this Report.

In addition to the above factors, we also caution that there is no assurance that our
allowance for credit losses will be adequate to cover future credit losses, especially if credit
markets, housing prices and unemployment do not continue to stabilize or improve. Increases in loan
charge-offs or in the allowance for credit losses and related provision expense could materially
adversely affect our financial results and condition.

Any forward-looking statement made by us in this Report speaks only as of the date on which it
is made. Factors or events that could cause our actual results to differ may emerge from time to
time, and it is not possible for us to predict all of them. We undertake no obligation to publicly
update any forward-looking statement, whether as a result of new information, future developments
or otherwise, except as may be required by law.

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Risk Factors

An investment in the Company involves risk, including the possibility that the value of
the investment could fall substantially and that dividends or other distributions on the investment
could be reduced or eliminated. We discuss below and elsewhere in this Report, as well as in other
documents we file with the SEC, risk factors that could adversely affect our financial results and
condition and the value of, and return on, an investment in the Company. We refer you to the
Financial Review and Forward-Looking Statements sections and Financial Statements (and related
Notes) in this Report for more information about credit, interest rate, market, litigation and
other risks and to the Regulation and Supervision section of our 2010 Form 10-K for more
information about legislative and regulatory risks. Any factor described below or elsewhere in this
Report or in our 2010 Form 10-K could by itself, or together with other factors, adversely affect
our financial results and condition. Refer to our quarterly reports on Form 10-Q filed with the SEC
in 2011 for material changes to the discussion of risk factors. There are factors not discussed
below or elsewhere in this Report that could adversely affect our financial results and condition.

RISKS RELATING TO CURRENT ECONOMIC AND MARKET CONDITIONS

Our financial results and condition may be adversely affected by difficult business and
economic conditions, particularly if home prices continue to fall or unemployment does not improve
or continues to increase. Our financial performance is affected by general business and economic
conditions in the U.S. and abroad, and a worsening of current business and economic conditions
could adversely affect our business, results of operations, and financial condition. For example,
significant declines in home prices over the last several years and continued high unemployment
have resulted in elevated credit costs and have adversely affected our credit performance,
financial results, and capital levels. If home prices continue to fall or unemployment does not
improve or rises we would expect to incur higher than normal charge-offs and provision expense from
increases in our allowance for credit losses. These conditions may adversely affect not only
consumer loan performance but also commercial and CRE loans, especially those business borrowers
that rely on the health of industries or properties that may experience deteriorating economic
conditions. A deterioration in business and economic conditions, which may erode consumer and
investor confidence levels, also could adversely affect financial results for our fee-based
businesses, including our mortgage, investment advisory, securities brokerage, wealth management,
and investment banking businesses.

Financial and credit markets may experience a disruption or become volatile, making it more
difficult to access capital markets on favorable terms. Financial and credit markets have
experienced unprecedented disruption

and volatility during the past several years. While market
conditions have stabilized and, in many cases, improved, a disruption in, or worsening of,
financial and credit market conditions, or increased volatility in financial and credit markets,
may adversely affect our ability to access capital markets on favorable terms and could negatively
affect our liquidity. We may raise additional capital through the issuance of common stock, which
could dilute existing stockholders, or further reduce or even eliminate our common stock dividend
to preserve capital or in order to raise additional capital.

Enacted legislation and regulation, including the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), as well as future legislation and/or regulation, could require us
to change certain of our business practices, reduce our revenue, impose additional costs on us or
otherwise adversely affect our business operations and/or competitive position. Economic,
financial, market and political conditions during the past few years have led to new legislation
and regulation in the United States and in other jurisdictions outside of the United States where
we conduct business. These laws and regulations may affect the manner in which we do business and
the products and services that we provide, affect or restrict our ability to compete in our current
businesses or our ability to enter into or acquire new businesses, reduce or limit our revenue in
businesses or impose additional fees, assessments or taxes on us, intensify the regulatory
supervision of us and the financial services industry, and adversely affect our business operations
or have other negative consequences.

For example, in 2009 several legislative and regulatory initiatives were adopted that will
have an impact on our businesses and financial results, including FRB amendments to Regulation E,
which, among other things, affect the way we may charge overdraft fees beginning on July 1, 2010,
and the enactment of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the
Card Act), which, among other things, affects our ability to change interest rates and assess
certain fees on card accounts. The impact of the Regulation E amendments and the Card Act could
vary materially due to a variety of factors, including changes in customer behavior, economic
conditions and other potential offsetting factors.

On July 21, 2010, the Dodd-Frank Act became law. The Dodd-Frank Act, among other things, (i)
establishes a new
Financial Stability Oversight Council to monitor systemic risk posed by financial firms and imposes
additional and enhanced FRB regulations on certain large, interconnected bank holding companies and
systemically significant nonbanking firms intended to promote financial stability; (ii) creates a
liquidation framework for the resolution of covered financial companies, the costs of which would
be paid through assessments on surviving covered financial companies; (iii) makes significant
changes to the structure of bank and bank holding company regulation and activities in a variety of
areas, including prohibiting proprietary trading and private fund investment activities, subject to
certain exceptions; (iv) creates a new framework for the regulation of over-the-counter derivatives
and new regulations for the securitization market and strengthens the regulatory oversight of

92

securities and capital markets by the SEC; (v) establishes the Bureau of Consumer Financial
Protection within the FRB, which will have sweeping powers to administer and enforce a new federal
regulatory framework of consumer financial regulation; (vi) may limit the existing pre-emption of
state laws with respect to the application of such laws to national banks, makes federal
pre-emption no longer applicable to operating subsidiaries of national banks, and gives state
authorities, under certain circumstances, the ability to enforce state laws and federal consumer
regulations against national banks; (vii) provides for increased regulation of residential mortgage
activities; (viii) revises the FDICs assessment base for deposit insurance by changing from an
assessment base defined by deposit liabilities to a risk-based system based on total assets; (ix)
authorizes the FRB to issue regulations regarding the amount of any interchange transaction fee
that an issuer may receive to ensure that it is reasonable and proportional to the cost incurred;
and (x) includes several corporate governance and executive compensation provisions and
requirements, including mandating an advisory stockholder vote on executive compensation.

Although the Dodd-Frank Act became generally effective in July 2010, many of its provisions
have extended implementation periods and delayed effective dates and will require extensive
rulemaking by regulatory authorities as well as require more than 60 studies to be conducted over
the next one to two years. Accordingly, in many respects the ultimate impact of the Dodd-Frank Act
and its effects on the U.S. financial system and the Company will not be known for an extended
period of time. Nevertheless, the Dodd-Frank Act, including future rules implementing its
provisions and the interpretation of those rules, could result in a loss of revenue, require us to
change certain of our business practices, limit our ability to pursue certain business
opportunities, increase our capital requirements and impose additional assessments and costs on us,
and otherwise adversely affect our business operations and have other negative consequences,
including to our credit ratings to the extent the legislation reduces the probability of future
Federal financial assistance or support currently assumed by the rating agencies in their credit
ratings. A reduction in one or more of our credit ratings could adversely affect our ability to
borrow funds and raise the costs of our borrowings substantially and could cause creditors and
business counterparties to raise collateral requirements or take other actions, which could
adversely affect our ability to raise capital.

Recently, the Obama Administration delivered a report to Congress regarding proposals to
reform the housing finance market in the United States. The report, among other things, outlined
various potential proposals to wind down the GSEs and reduce or eliminate over time the role of the
GSEs in guaranteeing mortgages and providing funding for mortgage loans, as well as proposals to
implement reforms relating to borrowers, lenders, and investors in the mortgage market,

including
reducing the maximum size of a loan that the GSEs can guarantee, phasing in a minimum down payment
requirement for borrowers, improving underwriting standards, and increasing accountability and
transparency in the securitization process. The extent and timing of any regulatory reform
regarding the GSEs and the home mortgage market, as well as any effect on the Companys business
and financial results, are uncertain.

Any other future legislation and/or regulation, if adopted, also could have a material adverse
effect on our business operations, income, and/or competitive position and may have other negative
consequences.

For more information, refer to the Regulation and Supervision section in our 2010 Form 10-K.

Bank regulators and other regulations, including proposed Basel capital standards and FRB
guidelines, may require higher capital levels, limiting our ability to pay common stock dividends
or repurchase our common stock. Federal banking regulators continually monitor the capital
position of banks and bank holding companies. In July 2009, the Basel Committee on Bank Supervision
published a set of international guidelines for determining regulatory capital known as Basel III.
These guidelines, which were finalized in December 2010, followed earlier guidelines by the Basel
Committee and are designed to address many of the weaknesses identified in the banking sector as
contributing to the financial crisis of 2008  2010 by, among other things, increasing minimum
capital requirements, increasing the quality of capital, increasing the risk coverage of the
capital framework, and increasing standards for the supervisory review process and public
disclosure.

In 2010, the FRB issued guidelines for evaluating proposals by large bank holding companies,
including the Company, to undertake capital actions in 2011, such as increasing dividend payments
or repurchasing or redeeming stock. Pursuant to those FRB guidelines, the Company submitted a
proposed Capital Plan
Review to the FRB. The FRB is expected to undertake these capital plan reviews on a regular
basis in the future. There can be no assurance that the FRB will respond favorably to the Companys
current Capital Plan Review, or future capital plan reviews, and the FRB, the Basel standards or other regulatory
capital requirements may limit or otherwise restrict how we utilize our capital, including common
stock dividends and stock repurchases. Although not currently anticipated, our regulators may
require us to raise additional capital in the future. Issuing additional common stock may dilute
existing stockholders.

Bankruptcy laws may be changed to allow mortgage cram-downs, or court-ordered modifications to
our mortgage loans including the reduction of principal balances. Under current bankruptcy laws,
courts cannot force a modification of mortgage and home equity loans secured by primary residences.
In response to the current financial crisis, legislation has been proposed to allow mortgage loan
cram-downs, which would empower courts to modify the terms of mortgage and home equity loans
including a reduction in the principal amount to reflect lower underlying property values.
This
could result in writing down the balance of our mortgage and home equity loans to reflect their
lower loan values.
There is also risk that home equity loans in a second lien position (i.e.,
behind a mortgage) could experience significantly higher losses to the extent they become unsecured
as a result of a cram-down. The availability of principal reductions or other modifications to

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Risk Factors (continued)

mortgage loan terms could make bankruptcy a more attractive option for troubled borrowers, leading
to increased bankruptcy filings and accelerated defaults.

RISKS RELATING TO THE WACHOVIA MERGER

Our financial results and condition could be adversely affected if we fail to realize all of
the expected benefits of the Wachovia merger or it takes longer than expected to realize those
benefits. The merger with Wachovia requires the integration of the businesses of Wachovia and
Wells Fargo. The integration process may result in the loss of key employees, the disruption of
ongoing businesses and the loss of customers and their business and deposits. It may also divert
management attention and resources from other operations and limit the Companys ability to pursue
other acquisitions. There is no assurance that we will realize all of the cost savings and other
financial benefits of the merger when and in the amounts expected.

We may incur losses on loans, securities and other acquired assets of Wachovia that are materially
greater than reflected in our preliminary fair value adjustments. We accounted for the Wachovia
merger under the purchase method of accounting, recording the acquired assets and liabilities of
Wachovia at fair value based on preliminary purchase accounting adjustments. Under purchase
accounting, we had until one year after the merger date to finalize the fair value adjustments,
meaning we could adjust the preliminary fair value estimates of Wachovias assets and liabilities
based on new or updated information that provided a better estimate of the fair value at merger
date.

We recorded at fair value all PCI loans acquired in the merger based on the present value of
their expected cash flows. We estimated cash flows using internal credit, interest rate and
prepayment risk models using assumptions about matters that are inherently uncertain. We may not
realize the estimated cash flows or fair value of these loans. In addition, although the difference
between the pre-merger carrying value of the credit-impaired loans and their expected cash flows 
the nonaccretable difference  is available to absorb future charge-offs, we may be required to
increase our allowance for credit losses and related provision expense because of subsequent
additional credit deterioration in these loans.

For more information, refer to the Overview and Critical Accounting Policies  Purchased
Credit-Impaired Loans sections in this Report.

GENERAL RISKS RELATING TO OUR BUSINESS

Higher charge-offs and worsening credit conditions could require us to increase our allowance
for credit losses through a charge to earnings. When we loan money or commit to loan money we
incur credit risk, or the risk of losses if our borrowers do not repay their loans. We reserve for
credit losses by establishing an allowance through a charge to earnings. The amount of this
allowance is based on our assessment of credit losses inherent in our loan portfolio (including
unfunded credit commitments). The process for determining the amount of the allowance is critical
to our financial results and condition. It requires difficult, subjective and complex judgments
about the future, including forecasts of economic or market conditions that might impair the
ability of our borrowers to repay their loans.

We might underestimate the credit losses inherent in our loan portfolio and have credit losses
in excess of the amount reserved. We might increase the allowance because of changing economic
conditions, including falling home prices and higher unemployment, or other factors such as changes
in borrower behavior. As an example, borrowers may be less likely to continue making payments on
their real estate-secured loans if the value of the real estate is less than what they owe, even if
they are still financially able to make the payments.

While we believe that our allowance for credit losses was adequate at December 31, 2010, there
is no assurance that it will be sufficient to cover future credit losses, especially if housing and
employment conditions worsen. We may be required to build reserves in 2011, thus reducing earnings.

For more information, refer to the Risk Management  Credit Risk Management and Critical
Accounting Policies  Allowance for Credit Losses sections in this Report.

We may have more credit risk and higher credit losses to the extent our loans are concentrated by
loan type, industry segment, borrower type, or location of the borrower or collateral. Our credit
risk and credit losses can increase if our loans are concentrated to borrowers engaged in the same
or similar activities or to borrowers who as a group may be uniquely or disproportionately affected
by economic or market conditions. We experienced the effect of concentration risk in 2009 and 2010
when we incurred greater than expected losses in our Home Equity loan portfolio due to a housing
slowdown and greater than expected deterioration in residential real estate values in many markets,
including the Central Valley California market and several Southern California metropolitan
statistical areas. As California is our largest banking state in terms of loans and deposits,
continued deterioration in real estate values and underlying economic conditions in those markets
or elsewhere in California could result in materially higher credit losses. As a result of the
Wachovia merger, we have increased our exposure to California, as well as to Arizona and Florida,
two states that have also suffered significant declines in home values. Continued deterioration in
housing conditions and real estate values in these states and generally across the country could
result in materially higher credit losses.

94

For more information, refer to the Risk Management  Credit Risk Management section and
Note 6 (Loans and Allowance for Credit Losses) to Financial Statements in this Report.

Loss of customer deposits and market illiquidity could increase our funding costs. We rely on bank
deposits to be a low cost and stable source of funding for the loans we make. We compete with banks
and other financial services companies for deposits. If our competitors raise the rates they pay on
deposits our funding costs may increase, either because we raise our rates to avoid losing deposits
or because we lose deposits and must rely on more expensive sources of funding. Higher funding
costs reduce our net interest margin and net interest income. As discussed above, the integration
of Wells Fargo and Wachovia may result in the loss of customer deposits.

We sell most of the mortgage loans we originate in order to reduce our credit risk and provide
funding for additional loans. We rely on GSEs to purchase loans that meet their conforming loan
requirements and on other capital markets investors to purchase loans that do not meet those
requirements  referred to as nonconforming loans. Since 2007, investor demand for nonconforming
loans has fallen sharply, increasing credit spreads and reducing the liquidity for those loans. In
response to the reduced liquidity in the capital markets, we may retain more nonconforming loans.
When we retain a loan not only do we keep the credit risk of the loan but we also do not receive
any sale proceeds that could be used to generate new loans. Continued lack of liquidity could limit
our ability to fund  and thus originate  new mortgage loans, reducing the fees we earn from
originating and servicing loans. In addition, we cannot assure that GSEs will not materially limit
their purchases of conforming loans due to capital constraints or change their criteria for
conforming loans (e.g., maximum loan amount or borrower eligibility). As previously noted, the
Obama Administration recently outlined proposals to reform the housing finance market in the United
States, including the role of the GSEs in the housing finance market. The extent and timing of any
such regulatory reform regarding the housing finance market and the GSEs, as well as any effect on
the Companys business and financial results, are uncertain.

Changes in interest rates could reduce our net interest income and earnings. Our net interest
income is the interest we earn on loans, debt securities and other assets we hold less the interest
we pay on our deposits, long-term and short-term debt, and other liabilities. Net interest income
is a measure of both our net interest margin  the difference between the yield we earn on our
assets and the interest rate we pay for deposits and our other sources of funding  and the amount
of earning assets we hold. Changes in either our net interest margin or the amount of earning
assets we hold could affect our net interest income and our earnings. Changes in interest rates can
affect our net interest margin. Although the yield we earn on our assets and our funding costs tend
to move in the same direction in response to changes in interest rates, one can rise or fall faster
than the other, causing our net interest margin to expand or contract. Our

liabilities tend to be
shorter in duration than our assets, so they may adjust faster in response to changes in interest
rates. When interest rates rise, our funding costs may rise faster than the yield we earn on our
assets, causing our net interest margin to contract until the yield catches up.

The amount and type of earning assets we hold can affect our yield and net interest margin. We
hold earning assets in the form of loans and investment securities, among other assets. If current
economic conditions persist, we may continue to see lower demand for loans by credit worthy
customers, reducing our yield. In addition, we may invest in lower yielding investment securities
for a variety of reasons, including in anticipation that interest rates are likely to increase.

Changes in the slope of the yield curve  or the spread between short-term and long-term
interest rates  could also reduce our net